Just when you had got over the entirely inane creation of a living-will that purports to solve the taxpayer's dilemma should a large SIFI hit an iceberg; Reuters reports [5] - this time super secret - the Fed, in 2010, asked for a plan from the US' Big 5 Banks for staving off collapse if they faced serious problems - critically emphasizing that the banks can't rely on government help. Read that again and we dare you not to laugh. It seems regulators are trying hard to ensure banks have plans for worst-case scenarios - in order to act rationally in times of distress.
[6]
Recovery plans differ from living wills, also known as 'resolution plans'; "Recovery plans are about protecting the crown jewels," said Paul Cantwell, a managing director at consulting firm Alvarez & Marsal. "It's about, 'How do I sell off non-core assets?' The priority is to the shareholders. A resolution plan is about protecting the system, taxpayers and creditors."
The deputy comptroller reassures that:
"Recovery plans required of the largest banks are helpful in ensuring banks and regulators are prepared to manage periods of severe financial distress or instability affecting the banking sector."
Each plan was to address severe financial stress at the firm, as well as "general financial instability." The plans should be capable of being executed ideally within three months, but no longer than six months, the documents said.
The plans should "make appropriate assumptions as to the valuations of assets and off-balance sheet positions," the documents said.
Recovery plans have been mentioned in public before, but only in passing.
Interestingly, Reuters has uncovered an 'Orderly Liquidation of a Failed SIFI' presentation - embedded below - sponsored by JPMorgan which is reassuringly positive of this end of the world contagion scenario.
JPMSIFI [7]