In keeping with the intent of Dodd-Frank, the FDIC has voted to require banks with $50 billion or more in assets to file periodic contingency plans that spell out how the bank will wind down if it were to fail.

The new rule covers 37 institutions. These so-called living wills go a long way toward ending the too-big-to-fail era, though some are skeptical that wind downs can be smoothly achieved without government intervention. The rule aims to enable the FDIC as receiver, to "resolve the bank to ensure that depositors receive access to their insured deposits within one business day of the institution's failure, maximize the net present value return from the sale or disposition of its assets and minimize the amount of any loss to be realized by the institution's creditors."

That's a tall order. This looms as a quite a compliance challenge as the rule requires a strategic analysis of the plan's components, a description of the wind down strategies and analyses of the bank's organization, material entities, interconnections and interdependencies, and IT systems among other things. The plan will include a public plan and private plan with confidential company information that would be useful in a wind down situation.

We can only hope that the plans work as intended, greatly assisting the FDIC if it ever has to wind down a big institution. We do not yearn for a quick test of the new plan. It's possible that other entities might have to also file such plans. If the Financial Stability Oversight Council were to deem, say, a hedge fund systemically important, it too would have to file plans. That doesn't appear to be likely, but we'll see. The biggest banks will have to comply by July 2012.

For more:
- here's some background from CNBC

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