Federal Deposit Insurance Corp. Vice Chairman Thomas Hoenig said that global banks should set up shields for certain short-term funding deals as a step toward ensuring they can be dismantled in U.S. courts after a failure, Bloomberg News reported yesterday. Hoenig called on banks such as JPMorgan Chase & Co. and Goldman Sachs Group Inc. to look at protecting funding such as repurchase agreements with a system similar to one announced last month that will delay termination of derivatives contracts during a U.S. financial-firm bankruptcy. Industry-driven stays “may be needed for those parts of the repo book that use long-term assets to secure short-term funding,” Hoenig said. “Volatile wholesale funding” at banks’ broker-dealer units is most vulnerable to runs across borders and firms, he said. Banks must prepare for the possibility that broker-dealers could enter bankruptcy and need sufficient financing as part of “living wills” required under the Dodd-Frank Act, Hoenig said. The FDIC and Federal Reserve, which can force business changes at banks that don’t come up with credible plans, found fault with submissions by 11 of the largest banks.
