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Why Are Banks Preparing “Living Wills”

Oct 10, 2023

I'm Coy Wells for U.S. Money Reserve. It's no secret that America's banking system was rocked by a series of closures earlier this year. In March, the California Department of Financial Protection and Innovation closed Silicon Valley Bank, which was also followed days later by federal regulators closing Signature Bank. The Treasury Department designated both banks as systemic risk. In the month that followed, more banks came under pressure and two more banks, First Republic Bank and Heartland Tri-State Bank, also went under. Others, such as PacWest Bancorp, were acquired by other banks in order to keep them afloat.

In response to these bank failures, regulators have begun looking at new ways to handle future crises. On August 14th, 2023, FDIC Chairman Martin J. Gruenberg announced that the agency was working on new rules for what they called living wills of banks. First required by the Dodd-Frank act, these living wills are essentially plans for what each bank would do in the event of future crises or failure. According to the FDIC, current rules state that large banking organizations must file one of these plans every year, while other banks must file one every three years.

In the time since Chairman Gruenberg's announcement, the FDIC and the Office of the Comptroller of the Currency have announced two proposed changes to the rules surrounding living wills for financial institutions. One requires banks with 100 billion in assets to maintain a new layer of long term debt, to better absorb losses in case of a crisis, to provide more options for resolution in the event of failure.

The second proposal, which is revised guidance, would require bank holding companies and foreign banks with over 250 billion in total assets that are already considered large banks, to provide agencies with more in depth information that may be required to help resolve a potential failure. Neither of these proposals has been implemented as of yet, and more could be announced in the coming months.

What does this mean for American consumers? It shows that regulators are still in the process of dealing with the effects of this year's banking failures, and since new rules are being put into place in response to failures, it may be a sign that regulators believe more failures or banking crises are possible. In light of these stressors, many consumers are also looking for ways to help protect their wealth in the event of future volatility in our nation's banking system. One of these tested strategies is physical gold.

Gold has long been considered a popular choice as a hedge against volatility and uncertainty in financial systems. Gold also exists outside of the traditional banking system and is independent from paper based assets like stock. To learn more about the benefits of owning physical gold and to receive your free gold information kit, call U.S. Money Reserve and speak to one of our dedicated account executives today.

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