Thursday, July 17, 2014

Disaster Planning by TBTF banks

Things in the financial world have grown very, very complex. When Lehman failed, it had $639 billion in assets and 209 subsidiaries; it took three years to unwind the bank. Today JPMorgan has $2.5 trillion in assets and 3,391 subsidiaries. Could it ever be unwound? 

Dodd-Frank mandated that large financial institutions submit plans to the Federal Reserve and the FDIC explaining how they could be “rapidly” liquidated without bringing down the economy. 

Here's what Stanley Fischer, the Fed Vice-Chair, has to say about that,“In short, actively breaking up the largest banks would be a very complex task, with uncertain payoff.” His boss, Janet Yellen, notes that the wind-down plans are “complex” and some plans encompass “tens of thousands of pages.” She says that there is a "process" to handle the situation. However, I suspect she has doubts about some of the plans as she also says, "I think we need to give these firms feedback.”

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