‘Shortcomings’ — and a ‘deficiency’ – related to derivatives found in living wills for four of eight largest banks

Weaknesses related to derivative portfolios were identified in the “living wills” of four of the largest banks in the nation, with one of the banks having a “deficiency,” federal banking regulators said Friday, following the release of a review of their 2023 wills.

Citigroup, according to the Federal Deposit Insurance Corp. (FDIC), submitted a living will (known formally as a “resolution plan”) with what that agency described as a “deficiency.” The deficiency was related to the banking company’s “capabilities to execute part of its resolution strategy concerning its derivatives portfolio.”

The FDIC said it determined that the Citigroup plan is not credible or would not facilitate an orderly resolution under the U.S. Bankruptcy Code. The agency therefore considered the weakness to be a deficiency. That condition is defined as a weakness that could undermine the feasibility of the plan.

The Federal Reserve, on the other hand, would not go as far as the FDIC, considering the weakness to be a “shortcoming” only. The agencies said when they split on the classification of a weakness, when one agency finds a shortcoming in a resolution plan and the other agency finds a deficiency, the plan is deemed to have a shortcoming. A shortcoming is a weakness that raises questions about the feasibility of the plan, the agencies said.

The agencies said in a release they also previously identified a shortcoming in Citigroup’s 2021 plan related to data quality and data management, “and that shortcoming remains outstanding.”

Three other banks — Bank of America, Goldman Sachs, and JPMorgan Chase — were all classified as having “shortcomings” in their plans. No other of the four large, complex banks whose plan was reviewed by the agencies had any weakness identified, the agencies said.

Regarding the banks with shortcomings, all three were also cited for their capabilities to execute part of their resolution strategies concerning their derivatives portfolios.

The shortcomings (and deficiency, in Citi’s case) are to be addressed in the next resolution plans due by July 1, 2025, the agencies said. The regulators in feedback letters specified that each bank, in its 2025 resolution plan submission, should address the topics of contingency planning and obtaining foreign government actions necessary to execute the resolution strategy.

Resolution plans, the agencies said, must describe a bank’s strategy for orderly resolution in bankruptcy in the event of its material financial distress or failure.

Agencies announce results of resolution plan review for largest and most complex banks