Sep 21

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Wind Down Plan Required for Largest Banks

Large banks doing business in the U.S. will now be required to provide reporting to regulators on how they would wind up operations and sell assets if the respective bank was in danger of failing.  The Federal Deposit Insurance Corporation (FDIC) voted to approve rules which were mandated by the financial overhaul congress passed last year.  The FDIC vote was 3-0 in favor or the new rules.  The rules were implemented to avoid the possibility of another government bailout of Wall Street banks, if another financial crisis were to occur.

Banks with $50 billion or more in assets would be required to submit this new reporting to the FDIC, Federal Reserve, and the Financial Stability Oversight Counsel.  Revisions to the reporting will be required annually.  Plans are to include information on each bank’s businesses and operations, structure, assets and liabilities, capital cushion held against risk, and how much they owe other large financial institutions.  Banks would have to start submitting reporting as early as July 2012.  Approximately 124 financial firms will be subject to the new requirements.  26 of the 124 financial institutions are U.S. Banks, which include Bank of America Corp., Citigroup Inc., Goldman Sachs Group Inc., and JPMorgan Chase & Co.  The rest are foreign banks with U.S. subsidiaries.  The rules would also be enforced on 37 federally insured banks and thrifts.

This new regulation would give the power to the FDIC to seize and dismantle banks that are a threat to the financial markets.  In reviewing each of the banks plans, regulators would be able to make banks change operations.  They also could order banks to change their plans.  This new oversight will give regulators much more power over large bank operations.

About the author

Anand Khemlani

I am a founding member of Fulcrum Inquiry, an accounting and economic consulting firm that performs damage analysis for commercial litigation, forensic accountings, financial investigations, and business valuations. I am a Certified Public Accountant (CPA), Accredited in Business Valuation (ABV), a Certified Fraud Examiner (CFE) and am a licensed Real Estate Broker. I regularly serve as an expert witness involving results of my forensic accounting assignments and damage analyses. My resume is available on Fulcrum's website

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