Bank adopts 'living will' to fend off crisis

The board of directors of China Merchants Bank adopted a "living will" proposal on Tuesday to handle any potential crisis.

"Living wills" are made so that banks can solve problems by themselves via spin-offs or liquidation when systematic risks occur. They can lessen possible threats to economic stability and they help avoid calling on taxpayers to foot the bill if anything goes wrong.

It is the first time that a Chinese domestic public bank has announced a "living will" and it comes just one month after the Chinese bank regulator required privately-owned banks to make such "wills" before these banks are officially established.

In July 2012, the US regulators required 124 financial institutions to prepare "living wills" to ensure a more orderly wind-down in case of a future Lehman Brothers situation.