Citigroup CEO Jane Fraser testifies during the Senate Banking, Housing and Urban Affairs Committee hearing titled Annual Oversight of the Nation's Largest Banks, at the Hart Building on Thursday, September 22, 2022.
Tom Williams | CQ-Roll Call, Inc. | Getty Images
Banking regulators on Friday revealed weaknesses in the resolution plans of four of the eight largest U.S. banks.
The Federal Reserve and the Federal Deposit Insurance Corporation have said that so-called living wills — plans to break up huge institutions in the event of distress or failure — are… Citigroup, C. B. Morgan Chase, Goldman Sachs And American bank Introduction in 2023 was insufficient.
Regulators found fault with the way each bank planned to unwind its massive derivatives portfolios. Derivatives are Wall Street contracts linked to stocks, bonds, currencies, or interest rates.
For example, when it was asked to conduct a quick test of Citigroup's ability to terminate its contracts using inputs different from those chosen by the bank, the company failed, according to regulators. This part of the exercise seems to have caught up with all the banks that struggled with the test.
“The assessment of the covered company’s ability to unwind its derivatives portfolio under conditions different from those specified in the 2023 plan revealed that the company’s capabilities have material limitations,” regulators said of Citigroup.
Living wills are a major regulatory practice imposed in the wake of the 2008 global financial crisis. Every two years, the largest U.S. Banks must credibly present their break-up plans in the event of a disaster. Banks with weaknesses will have to address them in the next wave of living will applications scheduled to be filed in 2025.
While regulators each deemed JP Morgan, Goldman and Bank of America's plans to have a “deficiency,” the FDIC deemed Citigroup to have a more serious “deficiency,” meaning the plan would not allow for an orderly solution under the law. . US Bankruptcy Law.
Since the Fed did not agree with the FDIC on its assessment of Citigroup, it was generally considered a less severe “deficit” rating.
“We are fully committed to addressing the issues identified by our regulators,” New York-based Citigroup said in a statement.
“Although we have made significant progress in our transformation, we recognize that we must accelerate our work in certain areas,” the bank said. “More broadly, we remain confident that Citi can be resolved without adverse systemic impact or need for taxpayer dollars.”
