WASHINGTON–The acting chair of the FDIC said the agency plans to waive a requirement that banks have a “living will” in place, saying they will no longer need to be built around a scenario for a hypothetical failure.

Instead, Travis Hill told a meeting of the American Bankers Association here, the FDIC will look for updated resolution plans focused “more specifically on providing the FDIC the information it needs to rapidly market the institution and, if needed, operate the institution for a short period of time.”

In addition, Hill said the agency will reduce its emphasis on discussion over strategy about how a collapsing lender transitions into an FDIC-authorized bridge bank, which operates the firm until an acquirer is identified. 

Guidance is Coming

Hill said the FDIC will provide new guidance over the coming days, and that the living wills are due this fall.  

In his remarks, Hill said the changes are necessary to avoid the kinds of sizable deposit runs that took place after the collapse of Silicon Valley Bank in March 2023 while it operated as a bridge bank.

Similarly, Signature Bank’s post-receivership losses that same month represented just under half of the deposits at the firm at the time it failed, he reminded his banking audience.

In both cases, the deposit losses reduced the failed institutions’ value and increased the costs to the Deposit Insurance Fund, Hill said. 

‘Melting Ice Cube Problem’

“This ‘melting ice cube’ problem is a common feature of bridge banks and conservatorships, given that many customers and counterparties will always question whether it is worth continuing to do business with an institution that has just failed and has a highly uncertain future,” Hill said in his prepared remarks. “Furthermore, prolonged turmoil can potentially be destabilizing to the banking industry and the broader economy.” 

Hill told the meeting the FDIC’s goal now should be to increase the likelihood of a good resolution, which is generally a weekend sale.