Living Wills

*/By Rick Nason, PhD, CFA
Partner, RSD Solutions Inc/*

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If you are of a certain age you likely have a will.  Financial institutions
in many countries now also have a version of a will; a living will. 
Assuming you are relatively healthy, both mentally and physically, then I
suspect you have no idea of how you are going to die.  Likewise, a financial
institution, assuming it is relatively healthy and sound also has no idea how
it will cease to exist.  If you knew how you were going to die, you would
undertake actions to mitigate the chances of dying.  Likewise, even the most
ineptly run financial institution will manage itself to decrease the probably
of going out of business. 

How a person dies is either natural or through some type of unforeseeable
accident.  It is the same for financial institutions (or any other type of
business organization for that matter); they die naturally through the normal
course of business, or they go out of business through a set of unforeseeable
circumstances.

Having a will does not change your chance of dying.  A financial institution
having a will does not change its probability of failing.  A will is a tool
for after you die, not before.  Let's stop pretending otherwise. 

There is one major difference between a (living) will for an individual and a
living will for a financial institution.  A (living) will for both a person
and for a financial institution is intended to create an orderly windup.  In
the case of a person, a (living) will is of great service to the family
members and the executor of an estate.  However I am highly confident that
whatever series of events that occur that cause a major financial institution
to fail, it will almost certainly make the living will of that institution a
farcical useless artifact.


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