Living Wills Improve Banks’ Crisis And Risk Management


By Anita Hawser

While the focus at the moment may be on bailing out indebted countries in the eurozone, one of the legacies of Lehman’s collapse is the need for systemically important financial institutions (SIFIs) to draw up “living wills.”


Bostrom, SNR Denton: Writing a living will is a beneficial exercise for a bank

The G20 meeting in Cannes in early November endorsed the Financial Stability Board’s proposals for Effective Resolution Regimes for Financial Institutions. Regulators in the UK and the US are already working with their respective SIFIs on implementing recovery and resolution regimes. The FSB identified 29 global SIFIs (G-SIFIs) for which effective resolution regimes will need to be in place by the end of 2012. In the UK the Financial Services Authority issued a consultation document that, according to Rosali Pretorius, a partner at law firm SNR Denton, is ahead of the curve when it comes to incorporating analytics and liquidity, capital and counterparty risk measures to flesh out banks’ living wills. She said that if living wills or effective resolution regimes had been in place before Lehman’s collapse in 2008 it would have been a lot easier to establish where all their assets were.

Large global financial institutions will need to manage their regulatory compliance to living will rules in different jurisdictions.

Robert Bostrom, former executive vice president, general counsel and corporate secretary for Freddie Mac and now co-head of the Global Financial Institutions and Funds Sector with the law firm SNR Denton, says writing living wills is a beneficial exercise for banks in terms of crisis and risk management. “If you are a large company, you should have a living will,” he says. However, the biggest variable, he adds, is the level of stress a bank is subjected too. “You can have the best-laid plans in the world,” he says, “but if there is a situation where multiple systemically-important financial institutions fail, and they are all looking to sell their assets at the same time but can’t sell them, it’s not going to work.”