Fed’s Dudley Signals a Shift Toward Bank Reform – Bloomberg 11-25-12

Simon Johnson at MIT Sloan School of Mgmt writes:

William Dudley at FRB New York made it clear that 1) too big to fail remains with us. 2) The completed first round of living wills – potential liquidation plans by major financial institutions – has been unsatisfactory and 3)  The legal mechanisms for an FDIC-managed resolution wouldn’t work outside U.S. borders.

Living wills are a sham. Banks don’t “hold” capital – capital is not an asset but a liability, or shareholder equity. At the largest financial institutions, the relationship between business units and legal entities is hopelessly complicated, creating a major difficulty in any insolvency or resolution process.