Citigroup, JPMorgan Chase and Goldman hit by regulators

Jane Fraser, CEO of Citigroup, testifies during the Senate Committee on Banking, Housing and Urban Affairs hearing entitled Annual Oversight of the Nations Largest Banks, at Hart Building on Thursday, September 22, 2022.

Tom Williams | CQ Roll Call, Inc. | Getty Images

Bank regulators Friday revealed that they found weaknesses in the resolution plans of four of the eight largest U.S. lenders.

The Federal Reserve and the Federal Deposit Insurance Corp. said that the so-called 'living wills' – plans for dismantling major institutions in the event of emergency or bankruptcy – of Citi Group, JPMorgan Chase, Goldman Sachs And bank of America submitted in 2023 were inadequate.

Regulators found fault with the way each of the banks planned to wind down their massive 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 settle its contracts using inputs other than those chosen by the bank, the company fell short: according to to the supervisors. That part of the exercise seems to have grabbed all the banks who struggled with the exam.

“An assessment of the covered company's ability to settle its derivatives portfolio under circumstances different from those specified in the 2023 plan has determined that the company's capabilities are materially limited,” regulators said. said from Citi Group.

The living will is a major regulatory exercise imposed in the wake of the 2008 global financial crisis. Every two years, the largest U.S. banks must submit their plans to credibly resolve themselves in the event of a catastrophe. Banks with weaknesses should address these in the next wave of advance directives due in 2025.

While JPMorgan, Goldman and Bank of America's plans were each deemed a “deficiency” by both regulators, Citigroup was deemed a more serious “deficiency” by the FDIC, meaning the plan would not allow for an orderly resolution under U.S. conditions . bankruptcy code.

Because the Fed disagreed with the FDIC on its rating of Citigroup, the bank was given the less serious “deficiency” rating.

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

“While we have made substantial progress in our transformation, we have recognized that we have had to accelerate our work in certain areas,” the bank said. “More broadly, we remain confident that Citi can 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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