More than 120 banks and other financial institutions on Friday posted plans for how they would wind down operations during a crisis, without the help of public money.
U.S. regulators will scour those "living wills" to make sure they are credible. Under the 2010 Dodd-Frank Act, the federal government can carve up a bank if regulators do not believe its plan is workable and in recent years they have faulted more than a dozen banks for drafting overly optimistic or not credible plans.
Regulators have not, however, begun the process of breaking up a bank.
General Electric Capital Corporation, Prudential Financial and American International Group posted their plans, which were originally due July 1, along with other institutions with assets of less than $100 billion. A handful of the banks publishing wills have more than $100 billion in assets, but less than $250 billion, such as RBS.
In July, the Federal Reserve and Federal Deposit Insurance Corporation told GE, Prudential and AIG to provide more information on funding, liquidity and connections to the global financial industry in their living wills. All three non-banks are labeled systemically important financial institutions (SIFIs), more commonly called "too big to fail."
AIG was a conspicuous part of the financial crisis that began in 2007 and led to Dodd-Frank. It received a bailout totaling $182.3 billion over fears it would bring down the financial system through swaps tied to toxic mortgages.
In its will AIG showed how it has slimmed down. From 2007 to the third quarter of 2015, its total assets shrank 53 percent to $502 billion and its debt decreased 83 percent to $31 billion, according to the plan. It has almost entirely eliminated derivatives exposure and reliance of short-term funding, while divesting more than $90 billion of subsidiaries and properties.
In an emergency, AIG would liquidate non-insurance units under Chapter 11 of the bankruptcy code and place its life insurance business in state receivership, the plan showed. It would split off or re-organize other insurance units. Billionaire investor Carl Icahn, who owns a stake in the company, has recently called for AIG to break itself apart.
Prudential said it would liquidate its derivatives unit and then shoot to keep major units funded, capitalized and operating after they exited either bankruptcy or state rehabilitation. It is now working on collecting more information about its agreements and relationships with affiliates and third parties and protecting its intellectual property.
GE Capital, meanwhile, said its current reductions and planned merger with its industrial mother company would create enough financial strength to drive down the likelihood of bankruptcy. Still, it said it has a resolution plan that would not put financial systems at risk.
© 2021 Thomson/Reuters. All rights reserved.