What is recovery and resolution planning ('living wills'), and what problem does it solve?

Recovery and resolution planning is the post-2008 framework requiring banks (and increasingly other systemic firms) to plan for severe stress and failure. A recovery plan is the firm's own playbook of credible options to restore viability under stress while still a going concern — raising capital, selling assets/businesses, cutting dividends, accessing liquidity — with triggers and governance. A resolution plan ('living will') addresses the gone-concern case: how the firm could be wound down or restructured in an orderly way without taxpayer bailout and without destabilizing the system — identifying critical functions to maintain, removing barriers to resolvability (legal-entity structure, operational continuity, financial contracts), and supporting tools like bail-in. Resolution authorities also prepare their own resolution strategy and set loss-absorbing capacity requirements (TLAC/MREL). The problem it solves is 'too big to fail': in 2008 governments bailed out banks because letting them fail was catastrophic and there was no orderly mechanism. Living wills and resolution regimes aim to make even large banks resolvable, shifting losses to shareholders and creditors (bail-in) rather than the public.