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As banks hurdle toward a July 2 deadline requiring them to submit in-depth liquidation roadmaps (known as living wills) to regulators at the FDIC and Federal Reserve, analysts and former banking officials are raising serious questions about the utility of such preparations under a real crisis scenario.
Thousands of pages — comprising complex asset breakdowns, primary documents and subsidiary structures — will be submitted by some of the nation’s largest banks including Goldman Sachs , JPMorgan , Morgan Stanley , Citigroup , and Bank of America .
A provision under new Dodd-Frank regulation requires large financial institutions to submit these plans to help regulators raise capital and sell assets in order to stave off a Lehman-like collapse.
While the concept is being broadly embraced by those on Wall Street and in Washington, much doubt is being raised about the purpose the wills will serve.
“In their present form, I don’t think they’re of much value,” says Bill Isaac, a former FDIC chairman and current head of financial institutions for FTI Consulting. Among Isaac’s biggest worries: the large lag time between when the data is collected and when it’s analyzed, which he estimates could span as much as nine months.
“By the time you get the information and get it analyzed, it’s old information,” says Isaac.
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