What Is a Bank Resolution Plan (Living Will)?

A Bank Resolution Plan, often referred to as a Living Will, is a detailed, regulator-required document that outlines how a systemically important financial institution (SIFI) could be resolved in an orderly manner in the event of financial distress or failure. The plan is designed to ensure the continuity of critical functions, minimize systemic disruption, and reduce the potential need for taxpayer-funded bailouts.

This requirement originated in the aftermath of the 2008 global financial crisis, when the failure of large, complex financial institutions exposed the lack of viable mechanisms for unwinding firms without widespread economic fallout. In the United States, the mandate for resolution planning is embedded in Section 165(d) of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. This provision requires large bank holding companies and designated nonbank financial firms to submit resolution plans to the Federal Reserve and the Federal Deposit Insurance Corporation (FDIC).

Similar frameworks exist internationally, shaped by the Financial Stability Board’s (FSB) Key Attributes of Effective Resolution Regimes, which have become the global standard for structuring resolution planning requirements.

Objectives and Policy Significance

The central goal of a bank resolution plan is to provide a credible and executable strategy for resolving a firm in a way that preserves financial stability. The plan must demonstrate that the firm can enter bankruptcy or another resolution process without causing significant harm to the broader economy or requiring extraordinary public sector support.

In practice, a resolution plan serves several regulatory and supervisory functions. It forces large financial institutions to regularly assess the complexity of their operations, evaluate their interdependencies, and improve their structural readiness for resolution. It also enhances regulators’ ability to intervene effectively during a crisis, using a predefined set of tools and strategies aligned with the resolution framework.

Key Components of a Resolution Plan

A typical bank resolution plan includes a wide range of technical and operational details. It identifies the firm’s core business lines, critical operations, material entities, and interconnections. It also maps how these components are linked across jurisdictions and legal entities.

The plan outlines the preferred resolution strategy, such as the single point of entry (SPOE) or multiple point of entry (MPOE) approach, and describes the steps that would be taken to wind down operations or transfer assets. It must assess liquidity and capital needs under stress scenarios, including how the firm would maintain access to funding during a crisis.

In addition, governance arrangements are detailed to show how decision-making authority would be exercised in resolution. This includes escalation procedures, internal communications frameworks, and legal authorizations needed to trigger resolution actions.

Regulatory Review and Compliance Standards

Regulators review resolution plans to determine whether they are credible and capable of being executed under plausible stress conditions. If a plan is deemed not credible, the firm is required to remediate the deficiencies. Persistent failure to comply can result in supervisory actions, including restrictions on business activities, heightened capital or liquidity requirements, or in extreme cases, mandatory divestitures.

In the U.S., the Federal Reserve and the FDIC jointly assess submitted plans. Review cycles vary based on the firm’s complexity and risk profile, with more frequent submissions required of global systemically important banks (G-SIBs) and less frequent cycles for smaller firms subject to the rule.

The supervisory feedback process includes formal communications that may identify shortcomings in areas such as legal entity rationalization, operational continuity, or liquidity forecasting. Firms must demonstrate that these weaknesses have been addressed in subsequent filings.

International Application and Cross-Border Considerations

Bank resolution planning is not limited to U.S. institutions. Many countries have adopted their own resolution regimes in line with the FSB’s guidance. For globally active banks, coordination among home and host country regulators is essential, as resolution actions must be synchronized across multiple legal jurisdictions.

This has led to the development of Crisis Management Groups (CMGs) for major international banks. These groups bring together relevant national authorities to oversee resolution planning and testing. Firms must ensure that their plans are operable not just in their home country but across all regions where they maintain material operations.

Evolution and Practical Impacts

Since the introduction of resolution planning requirements, many large banks have taken substantial steps to simplify their structures and enhance resolvability. This includes reducing the number of legal entities, improving internal liquidity management, centralizing critical services, and preparing contingency playbooks.

Resolution planning has also influenced how firms approach risk governance and business model design. By anticipating resolution challenges in advance, institutions are more likely to limit complexity and maintain robust operational continuity arrangements. These changes contribute to broader efforts in macroprudential regulation aimed at strengthening the resilience of the financial system as a whole.

The Bottom Line

A Bank Resolution Plan (Living Will) is a comprehensive, forward-looking strategy that outlines how a major financial institution can be resolved without threatening financial stability or requiring government intervention. It is a critical tool in the regulatory framework designed to prevent the disorderly collapse of systemically important firms. Rooted in post-crisis reforms, the resolution plan compels financial institutions to proactively structure their operations for resilience and accountability, reinforcing the credibility of the financial system in both domestic and global contexts.