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Financial Service Firms Must Have Living Wills

WASHINGTON (CN) - Non-bank financial companies with assets greater than $50 billion will have to submit a quarterly "living will" to financial regulators, according to rules adopted by the Federal Reserve and the Federal Deposit Insurance Corporation. The "wills" will serve as detailed plans for the orderly resolution of companies forced into bankruptcy or require bail-outs by the federal government.

The resolution plan must include detailed information showing the credit risk and exposure of the companies and the extent to which banks, insured by the FDIC and affiliated with the non-bank company, are protected from risks associated with the company.

In addition, the resolution plan must list full descriptions of the ownership structure, assets, liabilities, contractual obligations, and collateral debt obligations it has with other institutions, plus detailed descriptions of the information management systems the company uses to track its financial data.

The agencies are staggering introduction of the rule requiring companies with more than $250 billion or more in non-bank assets to submit their initial resolution plans by July 1, 2012. Companies with more than $100 billion in non-bank assets must file their plans by July 1, 2013 and all companies with non-bank assets of more than $50 billion must submit their plans by Dec. 31, 2013.

The rules are mandated by the Dodd-Frank Wall Street Reform and Consumer Protection Act, in part in response to the collapse of Lehman Brothers and the distress of the financial services sector as the extent of collateral debt obligations of investment banks became apparent.

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