Banks are now being required by Congress to provide regular plans for how they would enter bankruptcy, but they failed to meet these requirements that were set after the 2008 recession. The reason that they did not meet the requirements was because their plans were “not credible” or the FDIC didn’t think the plan would pass muster in a case of bankruptcy. Their failure to present a credible way to facilitate their bankruptcy process reinvigorates the “too big to fail” debate, because the failure of these five big banks would be way too big for the economy to handle, causing a recession.
None of the “big banks” that had to provide plans to the FDIC were able to get by with their strategies because they are simply too big and too complicated. The offices of JPMorgan want to be able to be accountable in the case of bankruptcy, but they don’t understand what they need to do better. Wells Fargo executives share JPMorgan’s views on the subject and are trying to find a way to improve their plans to the FDIC’s standards. These “living wills” are an understandable precaution, but will they work?
I say that they won’t. I don’t see an America that would benefit from an extremely formulated plan for bankruptcy, because the chances are that if/when any one of these big banks actually go bankrupt, the economy will go down with them. I get that we want to be ready for any and everything, but sometimes that just isn’t possible. Sometimes the economy collapses, but we always pick ourselves back up.
Follow the author on Twitter: @TheSilentYouth