Jane Fraser, CEO of Citigroup, testifies through the Senate Banking, Housing, and Urban Affairs Committee hearing titled Annual Oversight of the Nations Largest Banks, in Hart Constructing on Thursday, September 22, 2022.Â
Tom Williams | CQ-Roll Call, Inc. | Getty Images
Banking regulators on Friday disclosed that they found weaknesses within the resolution plans of 4 of the eight largest American lenders.
The Federal Reserve and the Federal Deposit Insurance Corporation said that the so-called living wills — plans for unwinding huge institutions within the event of distress or failure — of Citigroup, JPMorgan Chase, Goldman Sachs and Bank of America filed in 2023 were inadequate.
Regulators found fault with the way in which each of the banks planned to unwind their massive derivatives portfolios. Derivatives are Wall Street contracts tied to stocks, bonds, currencies or rates of interest.
For instance, when asked to quickly test Citigroup’s ability to unwind its contracts using different inputs than those chosen by the bank, the firm got here up short, according to the regulators. That a part of the exercise appears to have snared all of the banks that struggled with the exam.
“An assessment of the covered company’s capability to unwind its derivatives portfolio under conditions that differ from those laid out in the 2023 plan revealed that the firm’s capabilities have material limitations,” regulators said of Citigroup.
The living wills are a key regulatory exercise mandated within the aftermath of the 2008 global financial crisis. Every other yr, the most important US. banks must submit their plans to credibly unwind themselves within the event of catastrophe. Banks with weaknesses have to handle them in the following wave of living will submissions due in 2025.
While JPMorgan, Goldman and Bank of America’s plans were each deemed to have a “shortcoming” by each regulators, Citigroup was considered to have a more serious “deficiency” by the FDIC, meaning that the plan would not allow for an orderly resolution under U.S. bankruptcy code.
For the reason that Fed didn’t concur with the FDIC on its assessment of Citigroup, it was overall deemed to have the less-serious “shortcoming” grade.
“We’re fully committed to addressing the problems identified by our regulators,” Recent York-based Citigroup said in an announcement.
“While we have made substantial progress on our transformation, we have acknowledged that we’ve needed to speed up our work in certain areas,” the bank said. “More broadly, we proceed to have faith that Citi might be resolved without an hostile systemic impact or the necessity for taxpayer funds.”
