How Regulators Mess With Bankers’ Minds, and Why That’s Good

Bank regulators on Wednesday sent a message that big banks are still too big and too complex. They rejected special plans, called living wills, that the banks have to submit to show they can go through an orderly bankruptcy. The thinking behind the regulators’ call for living wills is that if a large bank crash is orderly, there will be no need to save it and no need for taxpayer bailouts. Pretty straightforward, right? Not for the banks. The regulators deliberately did not communicate the exact things the banks needed to do for their plans to pass muster. In this way, they kept them on their toes — and treating powerful banks this way may end up playing a surprisingly important role in keeping the financial regulation effective over time.

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