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Living Wills on life support

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July 1, 2014 came and went with an eerie silence for banks waiting for some type of acknowledgement or guidance from regulators regarding the latest deadline for revised Living Wills. Seemingly buried under the glacier of regulatory reform building up on Capitol Hill, agencies are bobbing dangerously on the surface of the sea of reform and may be unable to comment on Living Wills directives again this year.

What's happening in the market?

July 1, 2014 came and went with an eerie silence for banks waiting for some type of acknowledgement or guidance from regulators regarding the latest deadline for revised Living Wills. Seemingly buried under the glacier of regulatory reform building up on Capitol Hill, agencies are bobbing dangerously on the surface of the sea of reform and may be unable to comment on Living Wills directives again this year.

Banks are frustrated by the lack of feedback from regulators, as they continue to attempt to comply with the Living Will requirements they are guessing will be expected of them. With limited regulatory feedback on two versions of the documents already submitted, banks are struggling to understand what will satisfy regulators in their next revisions. More and more however, we are seeing a move on Wall Street away from responding to tactical, stilted regulatory demands and toward a drive for sweeping change, with not only the next governmental review in mind, but with shaping the healthy future state of the bank as its goal.

 

Market Response: Finding the riches is planning your own demise

Those in the front lines of driving banking change in answer to the government’s call for reformed practices are beginning to see and sense a difference in the way Wall Street is reacting to fractioned calls to action from regulators. Increasingly, top-tier banks are recognizing the benefits of analyzing their businesses through the recovery and resolution processes, and are discovering many improvements, both strategic and tactical, that can help understand and limit risk within their organization given adverse market conditions. According to key industry players, legislation has encouraged them to take a significant step forward in identifying obstacles, gaps and discontinuity of service and allowed them to form better strategies for operational and financial resilience.

The process of planning your own demise through articulating a living will, for many,seemed morbid at first, but in the strictest sense of the exercise, it simply means finally, truly understanding the riskiest pieces of your business and deciding, with full view of those risks, if you are willing to do business in that space. It also allows managers to re-architect their firms in ways that would contain damage if the riskier parts of their firms did, in fact, fail. No industry may hate regulation more than Wall Street, but once the industry’s financially-minded people start to see bottom-line improvements come from fundamental business re-formatting, positive change starts to happen in global proportions.

 

Just say no to perpetuating silos

Assessing where risk lives in a bank, and understanding what damage could be sustained in the face of catastrophic market movements, is a gift living wills is giving mega-banks and, if handled correctly, the entire movement toward reform could give banks the much needed opportunity to redesign their firms to work logically, with less risk, on a global level. The news is rife with major strategic announcements by banks, based on discoveries made during the process of becoming compliant to new regulation, and it has never been more important for financial industry players to take a strategic approach to change work from the very top of the organization, rather than completing tactical advancements on an incremental scale to appease ad-hoc regulatory requirements. Silo-ed improvements and adjustments support the continuation of silo-ed businesses, which modern banks can’t afford.

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