US regulators identified “serious weaknesses” in Citigroup’s data management as part of a plan detailing how the bank could be wound up in the event of a crisis, in the latest regulatory headache for the Wall Street group.
In a review by the Federal Reserve Board and the Federal Deposit Insurance Corporation, the two banking regulators said on Wednesday there were questions as to whether Citi would be able to produce accurate financial information during periods of financial stress. If the issues with Citi’s plan, which was submitted in 2021, are not corrected, the bank could face “additional [regulatory] requirements”.
Citi is already under a consent order from the Fed, which ordered the bank to upgrade its processes and its technology after it mistakenly wired $900mn to creditors of Revlon, one of its clients. Citi was also fined $400mn over the internal control “deficiencies”.
Citi now has until January 31 to submit a plan to address the shortcomings to its “living will”, which is a central pillar of post-2008 financial crisis reforms for the eight banks whose stability is deemed vital to the US economy. The Fed and the FDIC signed off on the living wills submitted by seven other banks, which include JPMorgan Chase, Goldman Sachs and Morgan Stanley.
Citi’s stock was down more than 2 per cent in New York trading following the regulatory decision.
“We will leverage that work to remediate the shortcoming identified today, as we acknowledge there is much more work to do,” Citi said in a statement.
“We continue to have confidence that we can be resolved without the use of taxpayer funds or an adverse systemic impact.”
The Fed and the FDIC had previously identified shortcomings in the 2019 living wills for Citi as well as Bank of America, BNY Mellon, Citi, Morgan Stanley, State Street and Wells Fargo. The regulators said the 2021 living wills had addressed these concerns.
On the whole, the US banking system remained “resilient”, Michael Barr, the newly appointed vice-chair for supervision at the Fed, told US lawmakers at congressional hearings last week.
As he warned of potential shocks associated with the Fed’s efforts to tame inflation via aggressive interest rate increases and a rapid reduction of its roughly $8tn balance sheet, Barr emphasised that the nation’s biggest lenders were bolstered by capital and liquidity positions that remained “above regulatory requirements”.
That assessment was bolstered by a recent report on financial stability published by the Fed this month and June stress tests, which concluded that US banks on the whole were well-positioned to absorb shocks even during a severe economic downturn.