Jane Fraser, CEO of Citigroup, testifies during the Senate Banking, Housing and Urban Affairs Committee hearing entitled “Annual Oversight of the Nations Largest Banks,” Thursday, September 22, 2022, in the Hart Building.
Tom Williams | CQ Roll Call, Inc. | Getty Images
Banking regulators said Friday they had found weaknesses in the resolution plans of four of America’s eight largest lenders.
The Federal Reserve and the Federal Deposit Insurance Corp. explained the so-called “living wills” – plans to wind down huge institutions in the event of distress or failure – from Citigroup, JPMorgan Chase, Goldman Sachs And Bank of America The documents submitted in 2023 were insufficient.
Regulators criticized the way banks planned to unwind their huge derivatives portfolios. Derivatives are Wall Street contracts tied to stocks, bonds, currencies or interest rates.
For example, when the company was asked to quickly test whether Citigroup could process its contracts using inputs other than those chosen by the bank, it failed, according to regulators. This part of the exercise seems to have trapped all the banks that had difficulty with the audit.
“An assessment of the covered entity’s ability to unwind its derivatives portfolio under conditions different from those set forth in the 2023 plan found that the entity’s capabilities are subject to significant limitations,” regulators said of Citigroup.
Living wills are an important regulatory measure mandated following the 2008 global financial crisis. The largest in the USA every two years. Banks must present their plans to credibly resolve themselves in the event of a disaster. Banks with weaknesses will need to address them in the next wave of advance directive filings in 2025.
While JPMorgan, Goldman and Bank of America’s plans were found to have “deficiencies” by both regulators, Citigroup’s plans were found by the FDIC to have a more serious “deficiency,” meaning the plan did not provide for an orderly resolution under U.S -Rules would enable insolvency regulations.
Because the Fed disagreed with the FDIC in its assessment of Citigroup, the bank received a less severe “deficiencies” grade.
“We are committed to addressing the issues identified by our regulators,” New York-based Citigroup said in a statement.
“While we have made significant progress in our transformation, we recognized that we needed to accelerate our work in certain areas,” the bank said. “Overall, we remain confident that Citi could be resolved without negative systemic impacts or the need for taxpayer dollars.”
JPMorgan, Goldman and Bank of America declined a request for comment from CNBC.
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2024-06-21 19:40:08
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