WASHINGTON — Top Federal Reserve officials threw their support Tuesday behind "living wills" to be drawn up by large, complex financial companies but said the idea needs improving upon.

Speaking to the Institute of International Bankers, Fed Gov. Daniel Tarullo pointed out "notable limitations" in the idea of a basic living will. "It is very difficult to predict in advance of a crisis which parts of the firm will be under greatest stress, which geographical regions will be affected most severely," he said. "Furthermore, governments may be understandably reluctant to rely too much on a wind-down plan developed by an internationally active financial firm that so mismanaged itself that it is on the brink of failure, placing other institutions [in] peril."

Tarullo said that management may also seek to preserve shareholder value, while the government is more interested in an orderly winding down.

Speaking in London, Eric Rosengren, the president of the Federal Reserve Bank of Boston, said living wills should take into account how regulators will react in the event of a crisis.

"To be truly effective, a living will for a global bank would not only require a plan developed and kept up to date by management but also an agreement among regulators in different countries that such a plan would be feasible," he said. "Living wills may serve as a mechanism to encourage greater synchronization of supervisory policies across countries."

Tarullo said the concept of a living will should be broadened to serve also as a supervisory tool.

"Under this approach, the firm would... be required to draw up a contingency plan to rescue itself short of failure, identify obstacles to an orderly resolution and quickly produce the information needed for the supervisor to orchestrate an orderly resolution."

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