Should Banks Invent A Prenup To Avoid The Need For A Living Will?
“Breaking Up Is Hard To Do…”
Recently, the FDIC proposed that the largest banks develop plans for their own liquidation. It’s one of the early ways to address the issue of “too big to fail” in the world of banking and financial reform by requiring up-to-date disclosure about a bank’s technology, systems, exposures and other potential threats. This transparency can be referred to as living wills, but they are really more like prearranged funerals.
Banks are probably annoyed by this idea because it means sharing the sandbox with Washington. Banks already do contingency planning on a regular basis, but the last year has proven it’s not enough. Besides, regulators can’t sit back and wait. There is an immediate public need for transparency. It can be argued that the government is not the best group to step in; I would argue it will most likely stifle innovation in financial services.
While hindsight is always 20/20, its hard not to go back and re-engineer a better outcome if we could have hit the innovation “do over” button.
Insight, Idea, Communication…
When insight or a deep understanding of the public need aligns with an idea to fill that need and effective communication to let the people know, brilliant innovation is born. Perhaps the contingency plans that are already being done by the banks are insufficient for regulators (an idea breakdown) or perhaps they were poorly communicated (a communication breakdown).
At least the insight was on target: exposing structure, assessing risk and developing a plan in case all does not go well. Seems very logical. Maybe it should have read more like a prenup than a living will, protecting certain tenets of their business and done with the intention of entering into a partnership with the economic system versus just a servant to it.
It may not be too late for the banks to craft something better. If it meets the need and is communicated well, all will benefit. And if not, at the very least we got to post an article that contains Neil Sedaka, Led Zeppelin and the FDIC all in one. That’s just kinda fun!