Reporting from Washington — The Federal Deposit Insurance Corp. has approved a rule requiring the nation's largest banks to submit so-called living wills — procedures to help regulators shut them down if they are seized on the brink of failure.
The requirement was a key component of last year's sweeping overhaul of financial regulations and is designed to avoid the chaos that took place during the 2008 financial crisis. Under the law, the largest banks and financial firms would be required to have plans in place for their orderly liquidation to avoid damage to the financial system.
The interim final rule approved Tuesday by the FDIC board applies to the 37 U.S. banks with more than $50 billion in total assets. They include Bank of America Corp., JPMorgan Chase & Co., Citigroup Inc. and Wells Fargo & Co.
"Since the recent financial crisis began in late 2008, financial authorities throughout the world have recognized and agreed that advance planning for the resolution of large, complex, financial institutions is critical to minimizing the disruption that a failure of such an institution may have as well as the costs of its resolution," the FDIC said in its 58-page interim final rule.
The public has 60 days to comment on the rule, which would take effect Jan. 1. The largest of those 37 banks must submit their resolution plans by July 1, 2012.
The plans, which must be updated periodically, will go to the FDIC, the Federal Reserve and the newly created Financial Stability Oversight Council, a group of top regulators and financial officials.
The FDIC is working with the Fed and the council on the living will requirements, which will be extended to other large financial firms, such as insurance companies, that are not federally insured banks. There are 124 of those firms.