Citigroup CEO Jane Fraser testifies during the Senate Banking, Housing and Urban Affairs Committee hearing titled Annual Oversight of the Nation's Largest Banks, in the Hart Building on Thursday, September 22, 2022.
Tom Williams | CQ-Roll Call, Inc. | fake images
Banking regulators revealed Friday that they found weaknesses in the resolution plans of four of the eight largest U.S. lenders.
The Federal Reserve and the Federal Deposit Insurance Corporation said that so-called living wills (plans to break up large institutions in the event of trouble or bankruptcy) of citi group, JPMorgan Chase, Goldman Sachs and Bank of America presented in 2023 were inadequate.
Regulators found flaws in the way each of the banks planned to dispose of their huge derivatives portfolios. Derivatives are Wall Street contracts linked to stocks, bonds, currencies or interest rates.
For example, when asked to quickly test Citigroup's ability to terminate its contracts using inputs other than those chosen by the bank, the company fell short, according to regulators. That part of the exercise seems to have caught all the banks that had problems with the test.
“An evaluation of the covered company's ability to unwind its derivatives portfolio under conditions other than those specified in the 2023 plan revealed that the company's capabilities are materially limited,” regulators said of Citigroup.
Living wills are a key regulatory exercise mandated after the 2008 global financial crisis. Every two years, the largest U.S. banks must present their plans to credibly cope in the event of a catastrophe. Banks with weaknesses need to address them in the next wave of living will filings scheduled for 2025.
While both regulators found JPMorgan, Goldman and Bank of America's plans to have a “deficiency,” the FDIC found Citigroup to have a more serious “deficiency,” meaning the plan would not allow for an orderly resolution under the terms of the US bankruptcy code.
Because the Federal Reserve disagreed with the FDIC in its assessment of Citigroup, the bank received the less serious “deficiency” rating.
“We are fully committed to addressing the issues identified by our regulators,” New York-based Citigroup said in a statement.
“While we have made substantial progress in our transformation, we have recognized that we have had to accelerate our work in certain areas,” the bank said. “More broadly, we remain confident that Citi could be resolved without adverse systemic impact or the need for taxpayer funds.”
