According to Financial Times News, the Federal Reserve recently published selections from resolution plans—commonly called “living wills”—submitted by major banks including Goldman Sachs, Morgan Stanley, Bank of America, Barclays, JPMorgan Chase, and Deutsche Bank. These documents outline how each institution would handle an orderly wind-up during catastrophic failure without requiring bailouts or causing market disruption. Analysis reveals significant differences in how banks confront their own mortality, with Goldman Sachs being notably direct about facing “an extremely large financial loss” followed by “ten business days of significant outflows of liquidity,” while others use more euphemistic language like “material financial distress event” or “severe idiosyncratic stress event.” The documents also show varying structural approaches, with most employing a “single point of entry” strategy where the parent holding company passes capital to subsidiaries before declaring bankruptcy. This linguistic analysis reveals deeper patterns in how financial institutions psychologically approach crisis planning.
The Psychology of Corporate Euphemism
What’s particularly revealing about these resolution plans isn’t just their content but their linguistic framing. The difference between Goldman’s blunt “extremely large financial loss” and Morgan Stanley’s “severe idiosyncratic stress event in a severely adverse economic environment” represents more than just stylistic preference—it reflects fundamental differences in organizational psychology. Banks that use passive voice, hypothetical framing, and abstract terminology are engaging in what psychologists call “emotional distancing,” a coping mechanism that allows them to discuss traumatic scenarios without fully confronting the emotional reality. This matters because the ability to imagine catastrophic failure directly impacts the quality of crisis planning and risk management.
From Paper Plans to Real Crisis
The practical challenge with these living wills extends beyond language to operational reality. While Goldman’s straightforward approach suggests clearer internal communication channels, the more convoluted language in other plans often masks deeper operational complexities. Banks with intricate legal structures—like the European institutions needing to coordinate between US and parent-company resolution strategies—face genuine complications that simpler language might not capture. However, complexity in explanation frequently correlates with complexity in execution, and in a genuine crisis, straightforward communication becomes critical. The Federal Reserve’s decade-long struggle to get banks to take these exercises seriously indicates how deeply ingrained this avoidance behavior runs in financial culture.
Risk Culture as Leadership Litmus Test
These documents serve as an unintentional leadership assessment tool. Compare Morgan Stanley’s emphasis on hypothetical scenarios with Goldman’s direct acknowledgment of specific failure conditions. The former suggests a culture where admitting vulnerability remains difficult, while the latter indicates greater comfort with uncomfortable truths. This distinction matters profoundly because risk management isn’t just about having plans—it’s about having leaders willing to acknowledge when those plans need activation. Organizations that soften language around failure may struggle more when actual crises hit, as their cultural norms discourage clear-eyed assessment of deteriorating conditions.
The Supervision Challenge
Regulators face a delicate balancing act with these living wills. The Federal Reserve must push banks toward realistic planning while recognizing that commercially sensitive information necessarily limits public disclosure. However, the linguistic patterns suggest that even private submissions may suffer from similar avoidance tendencies. The progression from rejected plans to current versions shows regulatory pressure has forced some improvement, but the fundamental psychological barriers remain. This creates a supervision gap where regulators can mandate better paperwork but struggle to mandate better thinking—the latter being far more critical for actual crisis response.
What These Documents Reveal Beyond Compliance
While living wills are regulatory requirements, they inadvertently communicate important signals about institutional risk culture. Banks like JPMorgan Chase that use diagrams to illustrate stress stages or Deutsche Bank’s “Crisis Continuum” framework are attempting to systematize what remains fundamentally unpredictable. These visual approaches suggest organizations grappling with complexity through structural solutions rather than cultural ones. Meanwhile, the varying page counts mentioned in the analysis—with more complex institutions requiring longer documents—highlight how organizational complexity itself becomes a resolution challenge, regardless of how directly or indirectly that complexity is described.
The Road Ahead for Resolution Planning
The evolution of these living wills will likely continue reflecting broader shifts in financial regulation and risk management philosophy. As international banks like Barclays navigate multiple regulatory regimes, their documents will necessarily become more complex, potentially exacerbating the linguistic distancing phenomenon. The fundamental challenge remains: institutions that cannot speak plainly about their own potential failure may struggle to recognize it when it approaches. The most valuable outcome of this exercise may not be the documents themselves, but the cultural shift required to produce them—a shift that appears to be happening unevenly across the banking sector.
