Financial authorities identify vulnerabilities in the recovery plans of JPMorgan Chase, Bank of America, Citibank, and Goldman Sachs, as referenced in their living will submissions.
In a recent review of the living wills of eight U.S. banks, the Federal Reserve and the Federal Deposit Insurance Corporation (FDIC) identified several weaknesses, including a deficiency in Citi's plan. This deficiency, which raises questions about the feasibility of the bank's plan, was also noted in the plans of JPMorgan Chase, Bank of America, and Goldman Sachs.
The issues found in Citi's plan were primarily related to data governance and quality. In a joint letter from the Fed and FDIC in 2022, it was stated that these issues could adversely affect the firm's ability to produce timely and accurate data. In response to this, the regulators ordered Citi to submit a "mapping document" addressing these issues.
The regulators, however, did not find any weaknesses in the plans from BNY Mellon, Morgan Stanley, State Street, or Wells Fargo.
The deficiency in Citi's plan was deemed a "deficiency" by the FDIC's board, and the bank faced the possibility of penalties if both regulatory agencies had spurned its plan. In a closed session, a majority of the FDIC's five-member board voted to reject Citi's resolution framework. A Freedom of Information Act request was submitted Friday to the FDIC for closed session minutes.
The Fed, on the other hand, determined that the issue in Citi's plan was only a shortcoming, not a deficiency. The Office of the Comptroller of the Currency, however, fined the bank $400 million over persistent issues in risk management, data governance, and internal controls. The Federal Reserve also issued an enforcement action.
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. In response to these concerns, the bank has made substantial enhancements to address the issues found in its living will plan.
During Citi's investor event Tuesday, CEO Jane Fraser discussed the bank's digital transformation, which is the bank's top priority. Fraser noted that progress has been too slow in some areas, leading the bank to intensify efforts, particularly in regulatory reporting, data, and strengthening the bank's stress testing and resolution planning processes. Citi expressed confidence that it could be resolved without adverse systemic impact or the need for taxpayer funds.
Each of the eight banks, including Citi, must address "contingency planning and obtaining foreign government actions necessary to execute the resolution strategy" in their 2025 resolution plans, according to the Fed. Citi intends to spend "whatever it takes" to address the consent orders and modernize the firm, as this is critical to the bank's long-term success.
