Banks don’t fail overnight; a bank in risk of bankruptcy takes years to develop. Dropouts often occur due to poverty or lack of preparation. The bank may be mismanaged, or make bad lending decisions. There may be too many bad investment decisions, or an economic slowdown. For those who thought they needed to know their math to succeed in the banking industry, remember it doesn’t matter if you’re good at numbers when you can’t read the problem.
Earlier this month, both the Fed and FDIC dismissed many big banks “living wills” as being unrealistic. Maybe big banks didn’t understand the intentions or the requirements of a living will. These “living wills” are meant to provide an exit strategy for the bank to enter bankruptcy if they were to fail in the future. The “living wills” financial institutions provided for review consisted of public assistance and unrealistic views of how their stockholders or depositors would respond in the event they were to go under. (Eavis, 2014) Knowing how to read and write opens the door to the world of learning, and so many big banks just aren’t there yet.
Big banks won’t be the only ones to benefit from the skill of improved literacy. Their own health depends on their understanding of regulations, as well as their ability to calculate risk and implement preventive measures. The economy as a whole can benefit from a big bank’s ability to read and follow regulations.
The Fed won’t be advertising forbearance. Time limits and hefty fees are being requested by lawmakers of the Fed for any future aid to big banks. (Hopkins, 2014) This will make planning and budgeting key for these financial institutions. They shouldn’t plan their budget based on the Fed’s discounted loans, but rather on the Fed’s two cents of what the requirements are for a legit living will. Some dropout’s win by chance, in this case there is the chance to learn.
Eavis, P. (2014, 08 05). Federal Reserve and F.D.I.C. Fault Big Banks’ ‘Living Wills’. Retrieved 08 20, 2014, from The New York Times: http://dealbook.nytimes.com/?module=BlogMain&action=Click®ion=Header&pg&version=Blog%20Post&contentCollection=Business%20Day
Hopkins, C. (2014, 08 18). Fed Urged to Ensure Emergency Lending Rules Bar Bailouts. Retrieved 08 20, 2014, from Bloomberg: http://www.bloomberg.com/news/2014-08-18/fed-urged-to-ensure-emergency-lending-rules-bar-bailouts.html