Federal Reserve Bank of Richmond President Jeffrey Lacker said that financial firms’ “living wills” should do a lot to strengthen the financial system, if banks and regulators respect these plans, the Wall Street Journal reported on Saturday. The living wills in question are plans by financial companies detailing how they expect to be wound down in the event of running into trouble. Lacker, speaking at ABI’s luncheon at the 88th Annual NCBJ Conference in Chicago, said that these plans are vital to ending the perception that many firms are considered to be too-big-to-fail and will be bailed out by the government in the event of trouble. “Living wills offer us the only realistic path” to ending the ongoing belief that very large firms will get government bailouts, Lacker said. While living wills “have not received as much attention as other regulatory and legislative responses to the crisis, they may be the most critical, and I applaud the hard work that is being done to make them credible.” Lacker long has argued that the too-big-to-fail problem that played such a large role in the financial crisis was in part the fault of regulators and political authorities who couldn’t resist saving failing financial firms. (Subscription required.)
http://blogs.wsj.com/economics/2014/10/10/feds-lacker-living-wills-will…
In related news, Federal Reserve Governor Daniel Tarullo said that risk to the financial system is possible even without firms that are deemed too big to fail, Bloomberg News reported on Friday. Tarullo, speaking in Washington, D.C. on Thursday, also said that international regulators will release some standards on capital and liabilities for big banks “relatively soon.” The Financial Stability Board is considering how quickly to introduce a rule on total loss-absorbency capacity (TLAC) for the world’s systemically important banks. “You can conceive of a financial system in which you could say with credibility no single institution is too big to fail, we could handle it, and yet there would still be systemic vulnerabilities,” Tarullo said. One example would be a “funding structure that was very fragile, under margins in which runs were incentivized.”
http://www.businessweek.com/news/2014-10-09/tarullo-says-systemic-risk-…