Vulnerabilities detected in the "living wills" of JPMorgan Chase, Bank of America, Citigroup, and Goldman Sachs by the Federal Reserve and Federal Deposit Insurance Corporation
Regulators Identify Shortcomings in Citi's Resolution Plan
The Federal Reserve and the Federal Deposit Insurance Corporation (FDIC) have identified specific shortcomings in Citi's 2023 living will plan. These shortcomings primarily revolve around areas that could impede the bank's ability to be resolved in an orderly manner under stress scenarios.
The shortcomings encompass incomplete operational and governance frameworks, gaps in resolution strategies, and insufficient detail on critical functions and interconnections. Living wills are designed to ensure large banks can be wound down without taxpayer bailouts.
Following the identification of these shortcomings in July 2023, the agencies initiated a supervisory feedback and iterative improvement process. Citi was required to enhance its resolution planning by improving the completeness and clarity of critical operation mappings, strengthening governance and decision-making protocols specific to resolution scenarios, and filling data and analysis gaps.
The regulators' subsequent findings acknowledge that Citi and other major banks have made substantial progress by updating their plans, increasing feasibility, and reducing obstacles to orderly resolution. The agencies have disclosed public sections of these updated living wills for large banks like Citi to enhance transparency, though detailed confidential assessments remain internal.
This iterative supervisory approach reflects the agencies’ commitment to bolstering systemic stability by continuously refining resolution plans based on the shortcomings identified during periodic reviews and testing.
It's worth noting that the agencies didn't find any weaknesses in the plans from BNY Mellon, Morgan Stanley, State Street, or Wells Fargo. However, the Office of the Comptroller of the Currency fined Citi $400 million over persistent issues in risk management, data governance, and internal controls.
In 2022, the Fed and FDIC found living will issues with Citi, Credit Suisse, and BNP Paribas. The regulators identified two deficiencies in a resolution plan submitted by Credit Suisse and a shortcoming in the plan laid out by BNP Paribas.
Citi has been under pressure to improve its data and risk controls since a bank employee mistakenly sent $900 million of Citi's money to creditors of cosmetics firm Revlon in 2020. The bank's CEO, Jane Fraser, discussed the bank's digital transformation, which is its top priority, during an investor event Tuesday. Fraser noted that progress has been too slow in some areas, leading to intensified efforts, particularly in regulatory reporting, data, and strengthening the bank's stress testing and resolution planning processes.
A spokesperson for Citi stated that substantial enhancements have been made in recent years and investments will be made to support the critical effort. Issues related to Citi's data governance program could adversely affect the firm's ability to produce timely and accurate data, according to a joint letter from the Fed and FDIC in 2022.
A Freedom of Information Act request was submitted Friday to the FDIC for closed session minutes regarding the vote during which the majority of the FDIC's five-member board voted to reject Citi's resolution framework and downgrade its data controls from "shortcoming" to "deficient." If both regulatory agencies had spurned the bank's plan, Citi would have faced penalties.
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