Citigroup CEO Jane Fraser testified during a Senate Banking, Housing and Urban Affairs Committee hearing titled “Annual Oversight of the Nation’s Largest Banks” on Thursday, Sept. 22, 2022, in Hartville.
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Banking regulators said Friday they had found weaknesses in the resolution plans of four of the eight largest U.S. financial institutions.
The Federal Reserve and the Federal Deposit Insurance Corporation have so-called living wills – plans to break up large financial institutions in the event of a crisis or failure. Citigroup, JPMorgan Chase, Goldman Sachs and Bank of America Applications submitted for 2023 were insufficient.
Regulators faulted the way banks planned to unwind their vast portfolios of derivatives – Wall Street contracts tied to stocks, bonds, currencies and interest rates.
For example, when Citigroup was asked to quickly test its ability to unwind contracts using inputs different from those selected by the banks, the company performed poorly, according to regulators. This part of the work appears to have ensnared all the banks, who struggled in the exam.
“Our evaluation of the Covered Companies’ ability to unwind their derivative portfolios under terms different from those set forth in the 2023 Plan revealed that the company’s ability was materially limited,” the regulator said of Citigroup.
Living wills are a key regulatory measure mandated in the aftermath of the 2008 global financial crisis. Every two years, large U.S. banks must submit plans to ensure they can recover from failure in the event of a catastrophe. Banks with weaknesses must address them in their next living will filing, scheduled for 2025.
While JPMorgan, Goldman and Bank of America’s plans were deemed “deficient” by both regulators, Citigroup was deemed by the Federal Deposit Insurance Corporation (FDIC) to have more seriously “deficient” plans that meant an orderly resolution under federal bankruptcy law would be impossible.
The Federal Reserve disagreed with the Federal Deposit Insurance Corporation (FDIC) in its assessment of Citigroup, so the bank received a less severe “deficient” rating.
“We remain committed to addressing the issues identified by regulators,” New York-based Citigroup said in a statement.
“We have made significant progress on reforms but recognise that work needs to be accelerated in certain areas,” the bank said. “More broadly, Citi remains confident that resolutions can be achieved without systemic harm and without the need to inject taxpayer funds.”
