Regulators crack down on Citigroup, JPMorgan Chase, and Goldman Sachs

Regulators crack down on Citigroup, JPMorgan Chase, and Goldman Sachs

The recent findings by banking regulators reveal weaknesses in the resolution plans of four of the largest American lenders. The Federal Reserve and the Federal Deposit Insurance Corp. scrutinized the living wills of Citigroup, JPMorgan Chase, Goldman Sachs, and Bank of America and found inadequacies in their plans for unwinding massive derivatives portfolios in the event of distress or failure.

One of the key areas of concern highlighted by regulators was the banks’ ability to unwind their derivatives portfolios under different scenarios than those specified in their plans. Citigroup, in particular, was singled out for having “material limitations” in its capability to address such scenarios, with the FDIC even deeming their plan to have a more serious deficiency that would not allow for an orderly resolution under U.S. bankruptcy code.

The living will submissions are a crucial regulatory exercise mandated in the aftermath of the 2008 financial crisis, aimed at ensuring that banks can credibly unwind themselves in times of catastrophe. Those banks found to have weaknesses in their plans are required to address them in the next round of submissions due in 2025.

While Citigroup has acknowledged the issues identified by regulators and committed to addressing them, JPMorgan, Goldman, and Bank of America have not yet commented on the matter. Despite the shortcomings identified, Citigroup remains confident that it could be resolved without adverse systemic impact or the need for taxpayer funds.

In conclusion, the recent revelations regarding the weaknesses in the resolution plans of major American banks underscore the importance of rigorous oversight and preparation in the financial sector. It serves as a reminder of the ongoing efforts needed to ensure the stability and resilience of the banking system in the face of potential challenges.