Citigroup, JPMorgan Chase and Goldman under pressure from regulators

Banking supervision on Friday disclosed that they’d identified weaknesses within the restructuring plans of 4 of the eight largest American banks.

The Federal Reserve and the Federal Deposit Insurance Corp. said the so-called living wills – plans to wind down large institutions within the event of distress or collapse – of Citigroup, JPMorgan Chase, Goldman Sachs And Bank of America Applications submitted in 2023 were insufficient.

Regulators criticized the best way individual banks planned to wind down their huge derivatives portfolios, that are contracts signed on Wall Street which can be tied to stocks, bonds, currencies or rates of interest.

For example, when the corporate was asked to quickly test Citigroup's ability to settle its contracts using inputs aside from those chosen by the bank, it failed. after to the regulators. This a part of the exercise seems to have caught all of the banks that had problems through the audit.

“An assessment of the affected entity's ability to unwind its derivatives portfolio under conditions different from those set out in the 2023 plan found that the entity's capabilities have material limitations,” the regulators said. said from Citigroup.

Living wills are a key regulatory measure mandated after the 2008 global financial crisis. Every two years, the most important U.S. banks must submit their plans to credibly resolve themselves within the event of a disaster. Banks with weaknesses must address them in the subsequent wave of living will filings in 2025.

While the plans of JPMorgan, Goldman and Bank of America were classified as “defective” by each regulators, the FDIC believed that Citigroup had an excellent more serious “defect”: the plan wouldn’t allow for an orderly resolution under U.S. bankruptcy law.

Because the Fed didn’t agree with the FDIC in its assessment of Citigroup, the bank received the less serious rating of “unsatisfactory.”

“We are committed to addressing the issues identified by our regulators,” New York-based Citigroup said in a press release.

“While we have made significant progress in our transformation, we acknowledge that we need to accelerate our work in certain areas,” the bank said. “Overall, we remain confident that Citi can be resolved without adverse systemic impact or the need for taxpayer funds.”

JPMorgan, Goldman and Bank of America declined a request for comment from CNBC.

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