US bank regulators find flaws in four big-bank living wills

By Pete Schroeder

WASHINGTON (Reuters) -U.S. bank regulators dinged Bank of America, Citigroup, Goldman Sachs and JPMorgan Chase on Friday for shortcomings in required plans for how they could be safely resolved in bankruptcy, known as living wills.

Specifically, the Federal Reserve and Federal Deposit Insurance Corporation said the banks need to refine how they could safely unwind their derivatives portfolios when they next submit living wills to regulators in 2025.

The banks will be required to detail how they will address those shortcomings in September. Bank of America did not provide immediate comment. JPMorgan and Goldman Sachs declined to comment.

The FDIC escalated its concerns with Citi’s plan to a “deficiency,” meaning the regulator found it not credible, but the Fed did not follow suit. If both regulators had found Citi’s plan deficient, it would have been required to resubmit an improved plan and could potentially face additional regulatory restrictions. Reuters previously reported the FDIC would issue the deficiency.

Following the 2007-2009 financial crisis, big banks were ordered to regularly submit resolution plans to regulators, detailing how they could be safely unwound without requiring government assistance. Those plans are assessed by regulators for credibility and feasibility.

Citi has spent several years working to addressing regulatory concerns around its data management. Reuters reported in February that the bank received fresh regulatory directives to fix problems in late 2023.

“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,” Citi said in a statement.

When banks next submit plans, the agencies also said they must address contingency planning and obtaining foreign government actions necessary to execute their plans, an apparent nod to struggles regulators faced safely unwinding Credit Suisse when it collapsed last year.

Instead of executing its living will, Swiss authorities engineered a takeover of Credit Suisse by UBS, raising questions over problems with such resolution plans.

Regulators did not identify problems in plans submitted by Wells Fargo & Co, Bank of New York Mellon, State Street or Morgan Stanley.

(Reporting by Pete Schroeder, Saeed Azhar and Tatiana Bautzer; Editing by Chizu Nomiyama and Rod Nickel)