Financial Firms' 'Living Wills' Released

By Dow Jones Business News, 
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WASHINGTON--U.S. regulators released plans by the nation's largest financial firms detailing how they might dismantle themselves in the event of another financial crisis.

The so-called "living wills," a requirement of the 2010 Dodd-Frank law, are intended as a blueprint to help regulators understand what to do in the event that a financial firm faces collapse.

For the first time this year three nonbank firms-- American International Group, Inc., Prudential Financial Inc., and General Electric'sCo's financing arm, GE Capital--submitted their plans to regulators. Those companies were brought under Federal Reserve oversight last year after being designated as "systemically important."

Banks and large nonbank financial firms overseen by the Fed must file the living wills every year.

Large banks filed the third drafts of their plans. However, the banks have yet to receive a formal, individual critique on last year's round of living wills. Regulators say they are working on the feedback.

The public versions of the plans released Wednesday are dozens of pages long and describe in general terms how the mammoth firms could be restructured if they ran into serious financial problems. Far more detailed plans, running into the hundreds or even thousands of pages, are submitted privately to regulators. All the plans contemplate a hypothetical scenario where the firm is failing and won't be bailed out by taxpayers.

AIG, the large insurer that needed a taxpayer bailout during the 2008 financial crisis, said it would avoid a repeat of that scenario by selling some parts of itself. The company said it would first sell some insurance businesses and then liquidate others in a Chapter 11 bankruptcy proceeding. Alternatively, it would stop writing new business in its insurance subsidiaries while they were placed in receivership, eventually liquidating them on an individual basis.

Prudential said its major units would voluntarily commence a Chapter 11 bankruptcy proceeding while looking to reorganize themselves and sell certain businesses.

GE Capital said it would carry out "a controlled liquidation" by selling business operations and individual assets to buyers such as banks, private-equity funds and other financial institutions.

For 11 banks with more than $250 billion in nonbank assets, the plans released Wednesday were the third they have filed with regulators. After the first draft, the Fed and the FDIC in April 2013 issued guidance to all banks directing them to provide more analysis of how the hypothetical plans would play out. But they haven't responded to the second drafts that banks submitted last October.

"This whole area is new and it's complicated and it involves two agencies." said Arthur Murton, director of the FDIC's office of complex financial institutions, in an interview. "We are working very hard to be able to [provide feedback] in the near future."

Write to Ryan Tracy at ryan.tracy@wsj.com

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This article appears in: News Headlines

Referenced Stocks: AIG , GE , PRU

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