IMF Delivers Unusually Blunt Message Ahead of Big Bank Living Will Deadline

As several of the largest banks are required to submit for approval a living will to regulators by July 1, Karen Shaw Petrou, noted regulatory analyst at Federal Financial Analytics, thinks “several will flunk.”

Failing grade for living will: no clue about how to handle non bank operations

“No one has a clue about how to handle a big bank’s non-banking operations, of which most have many. Even worse, if a systemic crisis this time comes from a non-bank – all too real a prospect given bondmarket jitters – a systemic crisis wholly imagined by any of the resolution standards would erupt,” she wrote in a June 5 memo reviewed by ValueWalk.

As unregulated derivatives that underlie the financial system reach risk levels never before seen – now even a fraction of the interconnected and nontransparent contracts are exercised it could swamp the U.S. FDIC insurance and trigger a banking crisis of historic proportion – Petrou along with the International Monetary Fund are using rather blunt language to point out this issue must be addressed.