Banks wrestle with recovery plans Since the 2008 collapse of Lehman Brothers triggered taxpayer rescues of half a dozen other large financial institutions, the problem of "too big to fail banks" has been issue number one on the global financial reform agenda. By the end of this year, 29 of the biggest banks must write "living wills" that spell out how they could be stabilised or shut down in a crisis. For those that do business outside their home countries, their various regulators are facing a similar deadline for inking co-operation agreements on how they would handle a crisis. But an Ernst & Young survey of 19 of the 29 banks on their living wills - formally known as recovery and resolution plans - makes clear that regional differences are playing a big role in their progress. Most UK and US banks are well into their planning, while the Japanese banks and some European banks have barely started. This largely reflects the approach of their home regulators. The UK Financial Services Authority has begun a pilot project with its biggest banks and has issued a detailed consultation outlining what it expects to see in the final versions of a recovery plan. The US, which has extensive experience winding up small banks, put out its big bank package late last summer. But some European countries have told their banks to rely on a position paper from the Financial Stability Board, which is co-ordinating the global work on this issue, and Japan has not yet issued formal guidance. Cross-border issues are critical to the plans. Almost all the banks said they expected to include specific asset sales in the resolution section as one of their stabilisation measures and nine of 19 said they would discuss withdrawal from particular markets or regions. With different insolvency rules and national taxpayers to protect, regulators are in some cases asking for quite different or even conflicting things. Ten of the 19 banks surveyed said they were having to deal with more than one country and four of those described the process as "difficult." Four out of 10 also said it was easier to deal with their home regulator than those where their bank has branches or subsidiaries. "What is coming up loud and clear from all the various processes is that the thing that makes resolution planning so difficult for multinational banks is that it is impossible to predict how national resolution authorities will deal with each other," says Simon Gleeson, partner at law firm Clifford Chance. Assume you are a US bank and you have a large London branch. Will the UK ringfence the branch and use the assets to pay local creditors, or contribute the assets to a universal resolution managed by [the US]? Last year, executives at several banks with presences in both the UK and the US told the Financial Times they had received contradictory instructions from each country about how much information to share with other regulators. "The issue of what gets communicated between home and host regulators continues to be sensitive, but they have made significant progress," says Peter Davis, a US partner at E&Y. The process of writing living wills varies considerably from bank to bank - 14 out of 19 have dedicated teams working on them, usually with 10 members or less. But most institutions are also drawing on experts from across their businesses. The banks reported that an average of 50 professionals were "involved" in writing the plans. Banks are also spending wildly different amounts, with one saying it believed the process would cost less than $2m and another expecting to spend $48.6m. In general, banks that were further into writing their plans expected to spend more, the survey found.