Banking on the living will

By: Mike Horrocks

This week, several key financial institutions will be submitting their “living wills” to Washington as part of the Dodd-Frank legislation.  I have some empathy for how those institutions will feel as they submit these living wills.  I don’t think that anyone would say writing a living will is fun.  I remember when my wife and I felt compelled to have one in place as we realized that we did not want to have any questions unanswered for our family.

For those not familiar with the concept of the living will, I thought I would first look at the more widely known medical description.   The Mayo Clinic describes living wills as follows, “Living wills and other advance directives describe your preferences regarding treatment if you’re faced with a serious accident or illness. These legal documents speak for you when you’re not able to speak for yourself — for instance, if you’re in a coma.”   Now imagine a bank in a coma.

I appreciate the fact that these living wills are taking place, but pulling back my business law books, I seem to recall that one of the benefits of a corporation versus say a sole proprietorship is that the corporation can basically be immortal or even eternal.  In fact the Dictionary.com reference calls out that a corporation has “a continuous existence independent of the existences of its members”.  So now imagine a bank eternally in a coma.

Now, I cannot avoid all of those unexpected risks that will come up in my personal life, like an act of God, that may put me into a coma and invoke my living will, but I can do things voluntarily to make sure that I don’t visit the Emergency Room any time soon.  I can exercise, eat right, control my stress and other healthy steps and in fact I meet with a health coach to monitor and track these things.

Banks can take those same steps too.  They can stay operationally fit, lend right, and monitor the stress in their portfolios.   They can have their health plans in place and have a personal trainer to help them stay fit (and maybe even push them to levels of fitness they did not think they could reach).  Now imagine a fit, strong bank.

So as printers churn, inboxes get filled, and regulators read through thousands of pages of bank living wills, let’s think of the gym coach, or personal trainer that pushed us to improve and think about how we can be healthy and fit and avoid the not so pleasant alternatives of addressing a financial coma.