Why Middle East banks should have ‘living wills’

The aftermath of the 2008 financial crisis has shaken the general belief in the stability of big banks and has brought to the forefront the impact such failures can have on the wider population. The result has been increased scrutiny.

That scrutiny has been not only from politicians and regulators but the public itself, with a stream of regulatory reforms coming into effect ever since.

As the debate continues over what steps are needed to prevent another system-wide financial crisis, there appears to be one area of agreement – recovery and resolution plans (RRPs) should form part of any comprehensive solution.


RRPs, often referred to as “living wills”, have been a common element of many of the proposals issued by various regulatory and oversight authorities since the start of the global financial crisis. The idea of living wills was formally articulated in mid-2009 by the Financial Stability Forum (FSF) – predecessor to the current Financial Stability Board (FSB).

RRPs remain relatively unknown in the Middle East. This is not surprising. None of the GCC central banks or other regulators has made them a formal requirement.

Meanwhile, they have become mandatory in numerous jurisdictions and are quickly becoming the norm. The US has required living wills from most financial institutions since 2011. The UK has required RRPs since the beginning of 2014. The Hong Kong Monetary Authority recently set out its recovery planning framework, and has issued consultation papers on a proposed resolution regime. And the EU’s Single Resolution Board has now been established, with the Single Resolution Fund due to come into force on January 1 next year.

So why should the GCC follow suit?

1. Impact on aspirations

US and European regulators require livings wills from their own banks and increasingly from foreign ones operating in their jurisdictions. Middle Eastern banks wanting to operate in those markets may have to create local plans for each market where it is a requirement (a number that will increase as other regulators adopt similar regimes). This will be time-consuming and more costly than creating a single group-level plan.

The lack of local regimes may mean that even if group plans are created, regulators abroad may not gain sufficient comfort from them. This may further penalise GCC banks and curb their expansion into certain key financial centres.

2. Transparency and safety

Middle Eastern banks are not immune to financial failures and, although dedicated resolution regimes would go further towards ensuring a consistent approach for distressed institutions, living wills may be an important first step. That is, if they are implemented appropriately, RRPs would ensure robust challenges to the plausibility of plans. They would also give central banks the power, and make sure they have the inclination, to act where living wills are weak or where group structures are found to be too complicated to ensure an orderly resolution.

3. Are living wills enough?

Living wills, as with any regulation, will not provide a panacea to the ills of the financial world and it is unlikely anyone thinks they offer protection on their own. Instead they can make up a key part of a wider solution.

They also take an important step towards at least identifying actions that can be taken in a major financial stress event. Some still argue that living wills may not work, that when banks fail no one will have time to enact them. But surely they are better than having nothing at all? At the very least they ensure that, even if there are no answers to the hard questions, they have been thought about and hopefully identified.

Living wills may not be far off in the GCC. A number of regional central banks and financial regulators have indicated that they are considering how living wills may be incorporated into their local regulatory regimes. Others may not be far behind. The banks in the region may want to start preparing for that new reality – and all the benefits and challenges that will come with it.

Bhavin Shah and Alicia Kedzierski are, respectively, director and manager in financial services regulatory advisory for Deloitte in Dubai.

Share This Post