Fed, FDIC find weaknesses in JPMorgan, BofA, Citi, Goldman living wills

Dive Brief:

The Federal Reserve and the Federal Deposit Insurance Corp. said Friday their joint review of the living wills of eight U.S. banks revealed weaknesses in plans from JPMorgan Chase, Bank of America, Citi and Goldman Sachs.
The regulators’ review was based on resolution plans the banks submitted in July 2023, the agencies said in the release. Each weakness identified in the plans from those four banks was labeled a “shortcoming,” which means it raises questions about the feasibility of the bank’s plan. Those shortcomings must be addressed in the next resolution plans, due in July 2025, the release said.
A living will refers to the wind-down plan a bank must have in place in case of failure to prevent taxpayers and the financial system from shouldering the burden. The agencies didn’t find any weaknesses in the plans from BNY, Morgan Stanley, State Street or Wells Fargo, the release said.

Dive Insight:

The Fed and FDIC both identified weaknesses in Citi’s plan, “but reached different conclusions on its severity,” the release said.

The FDIC’s board found Citi’s living will plan not credible and deemed the weakness identified as a “deficiency,” the Fed release noted. A majority of the five-member board voted during closed session Thursday to reject the New York City-based bank’s resolution framework, and downgraded its data controls from “shortcoming” to “deficient,” according to the Financial Times.

The Fed, however, determined it was only a shortcoming. When those conclusions differ, “the plan is deemed to have a shortcoming,” the Fed release noted. The regulator noted the shortcoming identified in the bank’s 2021 plan remains outstanding.

If both regulatory agencies had spurned the bank’s plan, Citi would have faced penalties, the Financial Times reported.

A Citi spokesperson said Friday the firm is “fully committed to addressing the issues identified by our regulators. While we’ve made substantial progress on our transformation, we’ve acknowledged that we have had to accelerate our work in certain areas, including improving data quality and regulatory processes such as resolution planning.”

JPMorgan Chase, Bank of America and Goldman Sachs did not comment Friday when reached by Banking Dive.

Regulators have been on Citi to improve its data and risk controls ever since a bank employee mistakenly sent $900 million of Citi’s money to creditors of cosmetics firm Revlon in 2020. The Office of the Comptroller of the Currency fined the bank $400 million over persistent issues in risk management, data governance and internal controls, and the Federal Reserve issued an enforcement action.

The Fed and the FDIC in 2022 — as part of a biannual review of the living wills of the same eight banks — detailed a shortcoming related to Citi’s data quality and data management, and ordered the bank to submit a “mapping document” addressing the issues.

“We’ve made substantial enhancements in recent years and, as we’ve said, we will invest what is necessary to support this critical effort,” the Citi spokesperson said in Friday’s statement. “More broadly, we continue to have confidence that Citi could be resolved without an adverse systemic impact or the need for taxpayer funds.”

Banking Dive submitted a Freedom of Information Act request Friday to the FDIC for closed session minutes.

Each of the eight banks, in their 2025 resolution plans, should address “contingency planning and obtaining foreign government actions necessary to execute the resolution strategy,” the Fed said Friday.

Issues related to Citi’s data governance program “could adversely affect the firm’s ability to produce timely and accurate data and, in particular, could degrade the timeliness and accuracy of key metrics that are integral to execution of the firm’s resolution strategy,” the Fed and FDIC said in a joint letter in 2022.

During Citi’s investor event Tuesday focused on its services business, CEO Jane Fraser said the bank continues to make progress on its digital transformation, the bank’s top priority.

Fraser noted, however, that executives “recognize there are places where progress has been too slow,” which has led the bank to intensify some efforts. This year in particular, the bank is focused on improvements to regulatory reporting, data and strengthening the bank’s stress testing and resolution planning processes, CFO Mark Mason said.

Citi intends to spend “whatever it takes to address the consent orders and modernize the firm, as this is an incredibly important body of work and critical to our long-term success,” Mason said.

Citi wasn’t the only bank with which the Fed and FDIC found living will issues in 2022. The regulators that year identified two deficiencies in a resolution plan submitted by Credit Suisse and a shortcoming in the plan laid out by BNP Paribas.