Tuesday, March 01, 2011

FDIC calls for big bank restructuring

(Reuters) - America's big international banks should restructure their operations unless they can prove they can easily be broken up if they start toppling during a financial crisis, said U.S. regulator Sheila Bair.

Multinationals will need to set up more foreign subsidiaries and realign their legal structures to make it easier for regulators to liquidate them if necessary, Bair told the Reuters Future Face of Finance Summit.

"If they can't show they can be resolved in a bankruptcy-like process... then they should be downsized now," said Bair, chairman of the Federal Deposit Insurance Corp.

"There is no reason in the world why they should get some special treatment backstop that other businesses in this country don't have," Bair said.

She also said investors need to accept that they will get lower returns from banks that hold higher capital and run safer operations.

The aim of orderly liquidation is to avoid a repeat of 2008, when the Bush administration bailed out American International Group (AIG.N) and other firms but not Lehman Brothers (LEHMQ.PK). Lehman's bankruptcy virtually froze capital markets.

The "living will" requirement mandated by last year's Dodd-Frank financial reform law is also designed to end the idea that some firms are too big to fail. It would put the greatest burden on banks with complex businesses and big international presences such as Citigroup (C.N), Bank of America (BAC.N), JPMorgan Chase (JPM.N), Goldman Sachs (GS.N) and Morgan Stanley (MS.N).

By year's end, big banks are expected to file with regulators their plans that would show how they can be closed down if they face a liquidity crisis.

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