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FDIC Rules Outline Living Wills, Stress Tests for Banks

The ""FDIC"":http://www.fdic.gov/ finalized one rule and proposed another Tuesday that requires systemically large financial institutions to submit resolution plans and undergo annual stress tests, respectively.


Under the finalized rule, financial institutions with more than $50 billion in assets will need to craft so-called ""living wills,"" or resolution plans, for the FDIC and regulators to follow in the event of collapse.

The rule covers 37 insured institutions with about $4.14 trillion in total deposits, a sum that included more than 60 percent of the nation's depositors in September.

The agency said in a statement that the rule is ""intended to address the continuing exposure of the banking industry to the risks of insolvency of large and complex insured depository institutions, an exposure that can be mitigated with proper


resolution planning.""

The rule imposes deadlines for banks with varying asset amounts that shows sensitivity by the FDIC to systemically large financial institutions.

The largest institutions ├â┬ó├óÔÇÜ┬¼├óÔé¼┼ô those with $250 billion or more in assets ├â┬ó├óÔÇÜ┬¼├óÔé¼┼ô must submit initial plans in early July. Banks with $100 billion or more in assets will need to submit theirs for review by July next year, and any with a minimum $50 billion in assets will need to offer theirs by the close of 2013.

The new rule takes over from past work by the Financial Stability Board and Basel Committee on Banking Supervision, which came up with resolution plans and stress tests in the heyday of the financial crisis.

The FDIC proposed another rule Tuesday for public commentary on capital adequacy tests, or stress tests, for financial institutions with $10 billion or more in assets. These include 23 state non-member banks that the FDIC regulates.

By conducting stress tests, federal regulators reportedly plan to gauge a bank's capital wellbeing against important indicators of economic health, including falling home prices, rising unemployment, and shaken market figures.

In a statement, FDIC acting chairman ""Martin Gruenberg"":http://www.fdic.gov/about/learn/board/board.html said that ""the FDIC and... institutions being tested will benefit from the forward-looking results that the stress tests will provide.

""The results will assist in ensuring an institution's financial stability by helping determine whether it has sufficient capital levels to withstand a period of economic stress,"" he added.

About Author: Ryan Schuette

Ryan Schuette is a journalist, cartoonist, and social entrepreneur with several years of experience in real-estate news, international reporting, and business management. He currently lives in the Washington, D.C., area, where he freelances for DS News and MReport.

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