Fed Issues Guidance on Living Wills for Large US Banks
Living Wills: A Road Map for Bank Resolutions
The Federal Reserve Board has issued new guidance to assist certain large banks in further developing their resolution plans, also known as living wills. These plans serve as blueprints for banks to follow in the event of a severe financial crisis, outlining how they can be quickly and orderly resolved without causing widespread economic disruption.
Key Provisions of the Guidance
The updated guidance provides detailed instructions for banks on how to:
- Identify and manage risks that could lead to resolution
- Develop strategies for resolving the bank in an orderly manner
- Coordinate with regulators and other stakeholders in the resolution process
Relevance for Large Banks
The guidance applies to banks with more than $100 billion in assets, as well as banks that are deemed by the Fed to be systemically important. These institutions are required to submit resolution plans to the Fed for approval.
Impact on the Financial System
Living wills provide a framework for resolving large banks in a way that minimizes the impact on the broader financial system. By planning for potential failures, banks and regulators can minimize the risk of a systemic crisis.
Conclusion
The Federal Reserve's guidance on living wills is an important step towards ensuring the stability and resilience of the US financial system. By providing clear and comprehensive instructions, the Fed is helping large banks prepare for and manage potential risks.
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