Kaufman, George G. --- "‘Living Wills’: Putting the Caboose Before the Engine and Designing a Better Engine" [2011] ELECD 497; in LaBrosse, Raymond John; Olivares-Caminal, Rodrigo; Singh, Dalvinder (eds), "Managing Risk in the Financial System" (Edward Elgar Publishing, 2011)

Book Title: Managing Risk in the Financial System

Editor(s): LaBrosse, Raymond John; Olivares-Caminal, Rodrigo; Singh, Dalvinder

Publisher: Edward Elgar Publishing

ISBN (hard cover): 9780857933812

Section: Chapter 12

Section Title: ‘Living Wills’: Putting the Caboose Before the Engine and Designing a Better Engine

Author(s): Kaufman, George G.

Number of pages: 14

Extract:

12. `Living wills': putting the caboose
before the engine and designing a
better engine
George G. Kaufman1

`Living wills' have recently been recommended by many analysts as an
important part of any reform program to attempt to prevent or at least
minimize the impact of future financial meltdowns. Such wills are included
in many of the legislative proposals currently being considered in the US
Congress, as well as in other countries and by the Bank for International
Settlements (BIS) and the International Monetary Fund (IMF).


12.1. `LIVING WILLS'

`Living wills' are plans or strategies to be developed by specified large
complex financial institutions (LCFIs) including banks for winding down
their operation if and when they become insolvent with minimum disrup-
tions both to themselves and to the economy.2 Thus, `living wills' are an
attempt to achieve orderly resolutions of firms whose closure might oth-
erwise be disruptive with higher private and societal costs than necessary.
Their purpose is to focus advance attention of both a firm's management
and its regulators on problems that may arise in the unwinding of the firm
when insolvency threatens including:

Accurately inventorying all assets and liabilities,
Identifying all counterparties, and
Giving full recognition to the complexity of organization structures
across both separately charted subsidiaries and different cross-
border and structural jurisdictions.

Such information should reduce the likelihood of pitfalls and make winding
down more efficient when it is required and lessen the need for policy makers
to consider the firm `too-big- ...