UPDATE 1-Top EU banks told to write "living will"

Wed Jan 23, 2013 8:56am EST

(Adds more detail, background)

By Huw Jones

LONDON Jan 23 (Reuters) - Top banks in the European Union must present so-called "living wills" by the year-end spelling out how they would survive a crisis without taxpayer aid.

The requirement will affect 39 named banks, 15 of whom have started drafting recovery plans, or living wills, under guidance of the global Financial Stability Board (FSB), the European Banking Authority said on Wednesday.

"The plans shall be submitted to the respective competent authorities and discussed within colleges of supervisors."

Living wills, which can run to several thousand pages, set out how a bank would top up funding and capital levels that become depleted. They show how key parts of the business could be hived off or closed down quickly so core services, such as payment systems, are maintained.

The documents are written by banks for regulators who decide if they are workable or if internal restructuring at the bank is needed.

The EU has proposed a law to manage cross-border banks in trouble that includes a requirement for lenders to draw up living wills.

The EBA has put pressure on banks to draft the will by the end of the year in case of a delay in approving the law.

The FSB, a regulatory task force for the Group of 20 (G20) leading economies, has already set out a framework that includes extra capital requirements, closer supervision and cross-border recovery and resolution plans for the world's 28 most systemically important banks.

Regulators hope that forcing banks to draw up living wills will tackle the "too big to fail" problem of lenders being able to borrow cheaply because markets believe they would always be rescued by government if in trouble because they were too complex to be wound up easily. (Editing by Dan Lalor)