No one likes to imagine their own undoing, but that’s what the government has asked the largest American banks to do, mapping out liquidation plans in “living wills” that will help financial regulators pick apart their carcasses if they go under. The banks have until next year to submit their plans, which are mandated by the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act.

The Wall Street Journal (subscription required) reports the Federal Deposit Insurance Corp. needs the information to handle the next Lehman Brothers-style collapse. With no preconceived dismantling plan in place, it took years to come up with a liquidation plan for the bank after it went under in 2008, and regulators are still working on sorting through the rubble.

The goal of the FDIC, which co-authored the living will requirement with the Federal Reserve, will be to prevent “too big to fail”-type scenarios in which the government chooses to bail banks out rather than risk the fallout from their collapse.

‘Living Wills’ Due Next Year [The Wall Street Journal (subscription required)]

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