Fed, FDIC ding four of the largest U.S. banks' unwinding plans

Citi tower
The Federal Reserve and Federal Deposit Insurance Corp. issued their reviews of the living wills of eight of the most systemically important banks and found "shortcomings" with the plans for Citigroup, Bank of America, Goldman Sachs and JPMorgan Chase. The FDIC found Citi's data management issues to be a "deficiency," but because the Fed only determined those problems to be a "shortcoming" the less severe label applies for remediation purposes.
Mario Tama/Photographer: Mario Tama/Getty I

WASHINGTON — The Federal Deposit Insurance Corp. and the Federal Reserve have found Citigroup's living will to be lacking, although the two agencies disagree as to the severity. 

Four of the plans that the largest U.S. banks must submit that outline how they would wind down in the event of a crisis were found to have weaknesses, according to the Fed and the FDIC. Those institutions include Bank of America, Citi, Goldman Sachs and JPMorgan Chase.

The FDIC, however, reached a "different conclusion" than the Fed on the severity of Citi's plan. The FDIC determined that Citi's plan "is not credible or would not facilitate an orderly resolution" under U.S. bankruptcy law, and would consider the weakness to be a "deficiency." 

The Fed, meanwhile, found that Citi's weakness is a "shortcoming," a less severe rating. 

The FDIC's finding is largely symbolic in this case. The two agencies said that when one agency finds a shortcoming and the other finds a deficiency, the bank's plan is deemed to have a shortcoming. 

The FDIC, in what could be Chairman Martin Gruenberg's last board meeting atop the agency, voted on the "deficiency" finding in a closed session on Thursday, over concerns about the bank's ability to get a handle on its data governance. 

Earlier in the day, the board voted to finalize stricter standards on the resolution plans of large regional banks, and to speed along the merger review process. 

Citi has worked for years to assuage regulators' concerns over the way it handles data in the event the bank needs to wind down. Both the FDIC and the Federal Reserve identified shortcomings in Citi's living will in 2022, citing concerns with how it manages financial data and how that could impede its ability to produce accurate reports under stress. 

A Citigroup spokesperson said that the bank continues "to make substantial investments to modernize our infrastructure, including the work we're doing to automate data and regulatory reporting processes." 

"We have rigorous, firm-wide stress testing and resolution planning processes and we're always working to improve and strengthen those capabilities," the spokesperson said. "Our balance sheet and financial health remains strong, with high levels of capital, liquidity and reserves. We continue to have confidence that Citi could be resolved without the use of taxpayer funds or an adverse impact on the financial system." 

Specifically, the Fed and the FDIC have concerns over Citi's capability to unwind its derivatives portfolio, according to a letter from the pair of agencies to the bank. 

Citi's "ongoing weaknesses" regarding data reliability meant that its calculations of resolution capital and liquidity needs were inaccurate, the agencies said in the letter.

"Due to their magnitude and impact, the FDIC considers the derivatives data reliability and unwind calculation weaknesses to be a deficiency," the FDIC and Fed said. 

The FDIC and the Fed told Citi that, until those weaknesses are fixed, the bank should "ensure governance routines meant to compensate for those weaknesses are operating effectively." 

The Fed and FDIC jointly found that weaknesses identified in the living wills of Bank of America, Goldman Sachs and JPMorgan are a "shortcoming." 

Bank of America's plan was found to have a shortcoming related to its strategy to unwind its derivatives positions. 

The agencies found that the bank "lacks the capability to use dates outside of normal business-as-usual production process for spot derivatives and trading positions in estimating resource needs associated with unwinding its derivative portfolio. 

"This, in turn, raises questions about the firm's ability to implement this aspect of its preferred resolution strategy in an actual resolution event," the agencies said. 

Goldman Sachs was also found to have a shortcoming related to its derivatives portfolio. In this bank's case, the two agencies said that it questions Goldman Sachs' "ability to segment its derivatives portfolio in a manner that accounts for trade-level characteristics, including the complexity and the granularity necessary to accurately measure exit timing, exit costs, and the difficulty of unwinding the portfolio in a resolution scenario." 

JPMorgan's plan was also criticized for its derivatives unwind strategy. Specifically, the Fed and the FDIC said that the bank is "unable to update certain economic conditions" when calculating how much capital and liquidity it would need to unwind its derivatives portfolio in a timely manner. 

For reprint and licensing requests for this article, click here.
Living wills Regulation and compliance Politics and policy

More from American Banker

The most quotable bank CEOs of 2024

Jamie Dimon and Brian Moynihan are among the eight chief executives whose blunt, pithy or pugnacious turns of phrase made the year more colorful.

Jan 1, 2025

The SEC's new leadership must stop Gensler's stifling of innovation

With Securities and Exchange Commission Chair Gary Gensler preparing to step down, the CEO of Unicoin, which is being sued by the agency, expresses hope for more acceptance of cryptocurrencies by the incoming Trump administration.

Jan 1, 2025

Banks refocus on succession planning and strategy in 2024

A number of banks mixed up their executive teams in the past year, as they shifted strategy, handled regulatory problems or planned for retirement.

Dec 31, 2024

Deals and regulatory scrutiny: Community banking in 2024

Community banking highlights in 2024 included strong deposit growth at a Los Angeles-based digital-only bank, continued regulatory scrutiny of banking-as-a-service arrangements, along with a transformational deal in the Old Dominion.

Dec 31, 2024

Georgia CU-bank deal unravels; another pops up in Michigan

A record 22 credit unions announced plans to acquire banks in 2024, though the year ended on a discordant note as regulatory concerns appear to have derailed a planned CU-bank deal in Georgia.

Dec 31, 2024

Top banks close branches, with one exception

JPMorgan Chase opened a net 38 sites in the 12 months ended Sept. 30, bucking the branch-closing trend.

Dec 31, 2024

  翻译: