Wall Street’s four biggest banks must improve their hypothetical winddown plans after top U.S. regulators found weaknesses in their plans.
So-called living wills of JPMorgan Chase & Co., Bank of America Corp., Goldman Sachs Group Inc. and Citigroup Inc. had a “deficiency,” the Federal Reserve and Federal Deposit Insurance Corp. said Friday. Regulators reviewed the most recent turnaround plans that were adopted after the 2008 financial crisis.
“For the four banks with identified deficiencies, the letters describe the specific deficiencies leading to the deficiency and the corrective actions required by the agencies,” the agencies said in a statement. joint statement. Regulators did not identify any weaknesses in the plans of Bank of New York Mellon Corp., Wells Fargo & Co., State Street Corp. or Morgan Stanley.
Bank of America, Goldman and JPMorgan declined to comment.
Citi said it was “fully committed to addressing the issues identified by our regulators.” The lender “will invest whatever is necessary to support this important effort” and is confident it can be resolved without taxpayer funds or negatively impacting the financial system, Citi said in a statement.
The Fed and FDIC disagreed about the significance of the problems associated with Citi’s plan. The FDIC considered this weakness a “deficiency,” which is a more serious finding. Because the two disagreed, Citi’s weakness was considered a “flaw.”
The discovery of a deficiency does not entail the imposition of a fine on banks. Regulators found problems with the way each of the four banks’ plans dealt with derivatives.
According to regulators, Citi’s plan could not include “updated stress scenarios and assumptions.” They also said data reliability issues contributed to inaccurate estimates of how much capital would be needed to implement the plan. Meanwhile, JPMorgan’s strategy failed to update certain economic conditions when calculating the required capital and liquidity to execute its plan, regulators said.
Bank of America’s bequest plan won’t work for some derivatives trades, the agencies said, casting doubt on the firm’s ability to implement it. It found that Goldman’s liquidation plan did not fully reflect the complexity of its derivatives portfolio.
Regulators made their decisions based on plans submitted in 2023. Banks that have weaknesses must address them in new turnaround plans due July 1, 2025, regulators say.