The U.S. Federal Deposit Insurance Corp. (FDIC) has put forward a series of proposed modifications aimed at altering the approach of larger regional banks toward handling living wills in the event of a significant financial collapse, similar to the situations witnessed with Silicon Valley Bank, Signature Bank, and First Republic Bank. According to recent reports, the core idea of the proposal revolves around the necessity for banks to develop a comprehensive strategy for managing living wills, specifically focusing on the methodology they would adopt to divest their business segments in the event of a failure.
During a speech delivered at the Brookings Institute in Washington, D.C., Martin Gruenberg, the Chairman of the FDIC, revealed the organisation’s intentions. He stated that the FDIC is in the process of drafting a notice of proposed rule-making, which is slated to be released in the near future. This forthcoming document is envisioned as a comprehensive reiteration of the existing rule, created to solicit feedback from stakeholders. The crux of this proposed rule entails the stipulation that banks must formulate a strategy that is resilient and not contingent upon an expedited sale process over a short timeframe, such as a weekend.
The envisaged regulations would necessitate banks to conduct a thorough evaluation of their operational components, identifying segments that could be divested as separate entities. Notably, these requirements would be more extensive for banks possessing assets exceeding $50 billion. A notable aim of these regulatory adjustments is to enhance the pool of potential acquirers for these divested business segments, thus broadening the scope of possibilities for a successful transition in the event of a financial crisis.
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