Federal authorities have brought attention to significant shortcomings in the crisis management strategies, known as "living wills," of four prominent US banks, indicating a need for stronger measures to safeguard against financial turmoil. The Federal Deposit Insurance Corporation (FDIC) and the Federal Reserve have stated that the plans submitted by Bank of America, Citigroup, Goldman Sachs, and JPMorgan Chase have not met expectations, and have set a deadline of 2025 for the necessary revisions.
The living wills have been mandatory since the 2008 financial crisis and subsequent Dodd-Frank reforms, requiring banks to outline a process for orderly bankruptcy without relying on taxpayer bailouts. However, recent evaluations by the FDIC and the Fed have revealed significant weaknesses in the strategies of these major banks, raising doubts about their ability to effectively mitigate systemic risks.
Of particular concern is Citigroup's plan, which was contested by both agencies for lacking credibility and failing to ensure an orderly resolution under the US Bankruptcy Code. This serves as a strong reminder of the stringent regulatory standards that are now expected. Despite these setbacks, the banks are committed to addressing their deficiencies.
Citigroup has acknowledged the urgency of improving its data quality and regulatory frameworks to comply with federal requirements. In a report published by Marketwatch, the bank stated, "We've recognized the need to expedite our work in certain areas, including enhancing data quality and regulatory processes such as resolution planning." They further expressed confidence that Citigroup could be resolved without adversely impacting the financial system or requiring taxpayer funds.
As the deadline approaches, these financial institutions are expected to overhaul their resolution plans, placing emphasis on contingency measures and obtaining necessary approvals from international authorities to implement their strategies. This directive follows the financial disruptions experienced last year, which resulted in the collapse of Silvergate Bank, Silicon Valley Bank, First Republic Bank, and Signature Bank. Additionally, First-Citizens Bank & Trust Company and Republic First Bank also failed.
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