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Regulators Won’t Wait for Banks to End “Too Big to Fail”

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The phenomenon of banks that are “too big to fail” must end, and the government isn’t waiting for the banks to end it, a federal regulator told a group of top bankers last week. Martin Gruenberg, acting director of the FDIC, said that his agency doesn’t have to wait until banks are ready with their “living wills,” which give detailed plans for how to break up their companies should they fail.

Instead, the agency has the power to begin planning for such big breakups now, Gruenberg said. And it’s starting to use it.

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“It’s really important to understand that there are two sets of plans being developed,” Gruenberg told the Bretton Woods Committee conference, according to American Banker. The FDIC has not yet released a copy of his remarks. “Since the enactment of the legislation a year ago, the FDIC has been undertaking its own internal resolution planning for our largest financial companies.”

Banks have lobbied strenuously against living wills, as we’ve reported, arguing that the requirement forces them to hand over sensitive information about their own internal operations. In response to those concerns, the FDIC postponed the deadline for when the first living wills are due.

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But that hasn’t stopped the agency from moving forward on its own, Gruenberg said. In August of last year, the FDIC created the Office of Complex Financial Institutions, which has the power to oversee bank holding companies with more than $100 billion in assets, as well as other financial companies that are deemed to be systemically important.

That office is now up and running, Gruenberg told bankers at last week’s meeting. Soon the FDIC plans to approve new rules that will require regular submissions from “Too Big to Fail” companies that would help regulators dismantle the businesses if they fail.

Image: massmatt, via Flickr.com

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