WASHINGTON — The Federal Deposit Insurance Corp. and the Federal Reserve have found Citigroup's living will to be lacking, although the two agencies disagree as to the severity.
Four of the plans that the largest U.S. banks must submit that outline how they would wind down in the event of a crisis were found to have weaknesses, according to the Fed and the FDIC. Those institutions include Bank of America, Citi, Goldman Sachs and JPMorgan Chase.
The FDIC, however, reached a "different conclusion" than the Fed on the severity of Citi's plan. The FDIC determined that Citi's plan "is not credible or would not facilitate an orderly resolution" under U.S. bankruptcy law, and would consider the weakness to be a "deficiency."
The Fed, meanwhile, found that Citi's weakness is a "shortcoming," a less severe rating.
The FDIC's finding is largely symbolic in this case. The two agencies said that when one agency finds a shortcoming and the other finds a deficiency, the bank's plan is deemed to have a shortcoming.
The FDIC, in what could be Chairman Martin Gruenberg's last board meeting atop the agency, voted on the "deficiency" finding in a closed session on Thursday, over concerns about the bank's ability to get a handle on its data governance.
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A Citigroup spokesperson said that the bank continues "to make substantial investments to modernize our infrastructure, including the work we're doing to automate data and regulatory reporting processes."
"We have rigorous, firm-wide stress testing and resolution planning processes and we're always working to improve and strengthen those capabilities," the spokesperson said. "Our balance sheet and financial health remains strong, with high levels of capital, liquidity and reserves. We continue to have confidence that Citi could be resolved without the use of taxpayer funds or an adverse impact on the financial system."
Specifically, the Fed and the FDIC have concerns over Citi's capability to unwind its derivatives portfolio, according to a letter from the pair of agencies to the bank.
Citi's "ongoing weaknesses" regarding data reliability meant that its calculations of resolution capital and liquidity needs were inaccurate, the agencies said in the letter.
"Due to their magnitude and impact, the FDIC considers the derivatives data reliability and unwind calculation weaknesses to be a deficiency," the FDIC and Fed said.
The FDIC and the Fed told Citi that, until those weaknesses are fixed, the bank should "ensure governance routines meant to compensate for those weaknesses are operating effectively."
The Fed and FDIC jointly found that weaknesses identified in the living wills of Bank of America, Goldman Sachs and JPMorgan are a "shortcoming."
Bank of America's plan was found to have a shortcoming related to its strategy to unwind its derivatives positions.
The agencies found that the bank "lacks the capability to use dates outside of normal business-as-usual production process for spot derivatives and trading positions in estimating resource needs associated with unwinding its derivative portfolio.
"This, in turn, raises questions about the firm's ability to implement this aspect of its preferred resolution strategy in an actual resolution event," the agencies said.
Goldman Sachs was also found to have a shortcoming related to its derivatives portfolio. In this bank's case, the two agencies said that it questions Goldman Sachs' "ability to segment its derivatives portfolio in a manner that accounts for trade-level characteristics, including the complexity and the granularity necessary to accurately measure exit timing, exit costs, and the difficulty of unwinding the portfolio in a resolution scenario."
JPMorgan's plan was also criticized for its derivatives unwind strategy. Specifically, the Fed and the FDIC said that the bank is "unable to update certain economic conditions" when calculating how much capital and liquidity it would need to unwind its derivatives portfolio in a timely manner.
