FDIC's Bair sees bank structural changes

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Sheila Bair on the future of finance

Mon, Feb 28 2011
Sheila Bair, chairman of the Federal Deposit Insurance Corp., speaks during the Reuters Future Face of Finance Summit in Washington, February 28, 2011. REUTERS/Joshua Roberts

Sheila Bair, chairman of the Federal Deposit Insurance Corp., speaks during the Reuters Future Face of Finance Summit in Washington, February 28, 2011.

Credit: Reuters/Joshua Roberts

By Dave Clarke

WASHINGTON | Mon Feb 28, 2011 12:40pm EST

WASHINGTON (Reuters) - Large financial institutions may need to make significant and potentially costly structural changes to comply with new U.S. "living will" requirements, bank regulator Sheila Bair said on Monday.

As part of last year's Dodd-Frank financial reform law, large financial institutions must submit to regulators a plan for their orderly liquidation, a plan the U.S. government could use if a firm's insolvency threatens the stability of the financial system.

Bair, chairman of the Federal Deposit Insurance Corp, told the Reuters Future Face of Finance Summit that financial firms will likely submit their living wills to her agency by the end of the year.

She said some large banks will probably have to make structural changes so that regulators can break them up if they are failing and seized by the government.

"If they can't show they can be resolved in a bankruptcy like process.. then they should be downsized now," she said.

"There is no reason in the world why they should get some special treatment backstop that other businesses in this country don't have," Bair told the summit in the Washington office of Reuters.

"Far too many of them, they manage their businesses along business lines as opposed to legal entity."

Bair said her concern is directed at multinational institutions and that these firms may have to create more subsidiaries abroad to make it easier for regulators to liquidate them.

"The burden is on them initially to show us that they don't think they need subsidiarization," she said. "They need to give us a plan on how they can be resolved on an international basis without it."

Bair said she was not advocating that some large banks be broken up now, but said they need to make changes so that they could be broken up if they begin to fail.

She argued banks could benefit from the process because it will give them a better understanding of the risk they face.

"They need to know what is in their bank," she said.

(Reporting by Dave Clarke, writing by Karey Wutkowski; Editing by Tim Dobbyn)
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Comments (2)
gordo365 wrote:
Frank-Dodd won’t work because it would require Washington to change. That is – to not fold when a financial crisis hits.

If Bair thinks our good senators representatives would stand by as Citi, US bank etc. went into a bankruptcy like process – she is delusional.

Make ‘em small now. Don’t build and emergency response system and then hope it works when we are in the middle of an emergency.

Feb 28, 2011 7:02pm EST  --  Report as abuse
beofaction wrote:
Neither Congress nor the executive branch want to split up the big “banks”(they are not really banks any more anyway). One forgets that they LET the banks merge with non-bank businesses and repealed the Glass-Steagle Act in ‘99. I’m not surprised at the economic result! Contrary to the propaganda spewed by the government and happily parroted by Reuters and other media, regulation and government control has constantly increased over the years. That, my friends, is why the government is not breaking them up. The government would lose control. It’s much easier to put you thumb on 5 or 6 institutions that control the majority of the banking, securities, investment banking, currency reserves, etc., than 20 or 30. The government has embarked on a course of destruction of the capitalist system that began in the early 1900’s. However, as I mentioned earlier their propaganda machine has convinced everyone after each of their failures that their intervention wasn’t the problem, on the contraty it was that the government hasn’t intervened enough! Like dutiful serfs the population agrees, and even demands more government “protection”. Now, if the government feels a certain corporation is a “threat” they will have the power to dissolve the company! Sounds an awful lot like totalitarianism, doesn’t it?

Feb 28, 2011 11:54pm EST  --  Report as abuse
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