Federal Deposit Insurance Corp. Vice Chairman Thomas Hoenig said yesterday that bankruptcy is the preferred path for resolving the largest U.S. banks when they collapse and firms should make fundamental changes to make that possible, Bloomberg News reported yesterday. Hoenig called on banks and regulators to finish work on Dodd-Frank Act “living wills” to lay out how companies can be shut down under court supervision. Relying on a separate rule that lets the FDIC unwind bank holding companies could lead to taxpayer-funded bailouts, he said. “Each systemically important financial firm must provide a credible plan for orderly resolution through bankruptcy,” Hoenig said. “If a credible plan is not produced, supervisors should be prepared to require an institution to sell assets and simplify operations until it shows itself to be bankruptcy compliant.” Eleven banks, including Goldman Sachs Group Inc. and JPMorgan Chase & Co., submitted a second annual round of the wind-down plans in October to the FDIC and Federal Reserve. The regulators must decide whether the plans are credible, which Hoenig said is unlikely given that “there are no international bankruptcy laws sufficient to sort out cross-border creditor rights.”
