Four of the largest banks on Wall Street, JPMorgan Chase, Bank of America, Goldman Sachs, and Citigroup, have been identified by US regulators as having weaknesses in their plans for a hypothetical wind-down. The Federal Reserve and Federal Deposit Insurance Corporation (FDIC) released their findings on Friday after reviewing the most recent resolution plans submitted by these banks.
The specific weaknesses identified include issues with how each bank deals with derivatives. For example, Citi's plan was found to have a more serious deficiency due to its inability to add updated stress scenarios and assumptions, as well as data reliability issues that led to inaccurate calculations regarding the necessary capital and liquidity for executing the plan.
JPMorgan's strategy was unable to update some economic conditions when calculating the required capital and liquidity, while Bank of America's living will plan did not work for certain derivatives transactions. Goldman Sachs' wind-down plan was found not to fully capture the complexity of its derivatives portfolio.
The regulators diverged on the significance of Citi's weaknesses, with the FDIC deeming it a deficiency and the Fed considering it a shortcoming. The banks are required to address these issues in their new resolution plans due July 1, 2025.
These findings come after regulators identified similar weaknesses in the living wills of four other large banks - Bank of New York Mellon Corp., Wells Fargo & Co., State Street Corp., and Morgan Stanley - earlier this year. The regulators did not find any weaknesses in the plans from these banks.
The requirement for banks to submit living wills is a response to the 2008 financial crisis, which saw several large institutions require government bailouts. These plans are intended to show how each bank could be safely unwound if it were to fail.
