Sunday, November 20, 2011
The Case Against the Dodd-Frank Act’s Living Wills: Contingency Planning Following the Financial Crisis, by Nizan Geslevich Packin, University of Pennsylvania, was recently posted on SSRN. Here is the abstract:
The Dodd-Frank Act’s “living will” requirement mandates that systemically important financial institutions develop wide-ranging strategic analyses of their business affairs, and submit comprehensive contingency plans for reorganization or resolution of their operations to regulators. The goal is to mitigate risks to the financial stability of the US and encourage last-resort planning, which will allow for a rapid and efficient response in the event of an emergency. Beyond the general framework set forth in the Dodd-Frank Act, very little is known about living wills; no legal literature currently exists on what the concept entails, and regulators have not yet created any rules that detail how living wills will operate. Nevertheless, living wills are perceived to be a successful regulatory solution to the problems highlighted by the recent financial crisis. This article focuses on two issues: (i) the implementation and operation of living wills for systemically important financial institutions; and (ii) the problematic aspects of living wills, and how they can lead to the failure of even the most ideally planned living wills. The article concludes that living wills are merely a disclosure requirement with high expectations, but only limited power; accordingly, they should not be perceived as a comprehensive, satisfactory regulatory solution to the too-big-to-fail problem.