The idea that financial firms whose collapse could create trigger broad economic problems should come up with their own living wills has been gaining traction lately.

After the confused attempt to bailout or save Lehman Brothers, Bear Stearns and AIG in 2008, some regulators have been suggesting that banks and important financial institutions plan for their own demise.

A senior Canadian finance official said on Wednesday that the Group of Twenty (G20) are thinking about the idea as a way to avoid financial meltdowns.

 Even one of the top financial advisors unwinding Lehman Brothers’ has said a living will would have helped.

But is it the banks or the regulators that oversee them who should come up with these living wills? Should they come up with them together? Who would have better incentives to prevent systemic issues?

The issue was discussed on Wednesday at a Practising Law Institute conference in New York by  H. Rodgin Cohen, a mergers & acquisitions lawyer at Sullivan & Cromwell in New York, who personally worked on deals like JPMorgan-Bear Stearns, Barclays-Lehman, and Wells Fargo-Wachovia last year.  Here is what Cohen told the conference:    

“I do think we have it somewhat backwards on all this emphasis on the living wills for these institutions. Actually the living will isn’t the institution’s responsibility. It is truly surprising to me that sitting in a locked desk somewhere there isn’t a living will which the relevant supervisor has for each institution. Clearly that did not exist last year, and hopefully we have it today. “

So who should come up with these “living wills”? Banks or Regulators or both?