Citigroup's data management practices raise questions about its ability to dissolve itself in an orderly fashion in the case of failure, bank regulators found.
The New York-based bank was the only institution flagged by the Federal Reserve Board of Governors and the Federal Deposit Insurance Corp. in their review of resolution plans for the eight largest and most complex banks in the U.S., which was released Wednesday morning.
Resolution plans, also known as living wills, outline how banks will dissolve in the event of material financial distress or failure without disrupting the broader financial system. The Dodd-Frank Act requires the eight largest and most complex domestic firms to submit targeted resolution plans to the Fed and FDIC for review every two years.
In their latest review, focused on resolution plans submitted in 2021, the Fed and FDIC noted "serious weaknesses" within Citigroup's data quality and integrity management systems. These failings raise questions about the bank's ability to produce accurate financial information during periods of stress, the agencies concluded.
FDIC acting Director Martin Gruenberg, in a written statement, said Citigroup's plan "requires urgent attention by the firm's senior management and board of directors."
Gruenberg added that the finding highlights the importance of having sound resolution plans and adequate tools to see them through.
"Simply stated, if a firm lacks the ability to successfully execute its resolution strategy, the credibility of a firm's plan for its rapid and orderly resolution under the Bankruptcy Code would be called into question," he said.
In a written statement issued Wednesday, Citigroup said it has made "significant investments" into its data integrity and management capabilities and plans to make further improvements moving forward.
"We will leverage that work to remediate the shortcoming identified today, as we acknowledge there is much more work to do," the bank's statement reads. "The result of these efforts will be more streamlined systems that improve the quality of our data as well as the speed with which it can be accessed."
Citigroup also said it was confident in its ability to be resolved in the case of failure without threatening broader financial stability.
"We have a rigorous, firm-wide resolution planning process across Citi's businesses, functions and regions," the company's statement notes. "We continue to have confidence that we can be resolved without the use of taxpayer funds or an adverse systemic impact."
Gruenberg encouraged banks to adopt internal testing and monitoring capabilities to identify and address resolution shortcomings on their own, noting that regulators could soon require such steps.
"Going forward, the agencies expect to expand their evaluation of Title I resolution plan submissions with more granular reviews of firms' internal testing results and to conduct their own independent capabilities assessments," he said.
The Fed and FDIC are also considering
In the 2021 review, no shortcomings were found in the resolution plans for Bank of America, Bank of New York Mellon, Goldman Sachs, JPMorgan Chase, Morgan Stanley, State Street or Wells Fargo.
For Citigroup, the data management shortcomings identified by the Fed and FDIC raise concerns about the bank's ability to recognize the occurrence and severity of financial distress, support the legal entities related to its secured support agreement, and evaluate the need for bankruptcy in a timely manner.
The Fed flagged some of these data management issues in a cease-and-desist order against Citigroup in October 2020 after the Federal Reserve Bank of New York's supervisory review of the firm. The bank must submit a plan for resolving these issues by Jan. 31, 2022.
The report also noted that the six banks that had shortcomings in the Fed and FDIC's 2019 review — Bank of America, BNY Mellon, Citigroup, Morgan Stanley, State Street and Wells Fargo — had all resolved the flagged issues in their 2021 plans.
