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Fed Faults Living Wills of BofA, Citi, Goldman and JPMorgan

Fed Faults Living Wills of BofA, Citi, Goldman and JPMorgan

(Bloomberg) -- Four of the biggest banks on Wall Street must improve their blueprints for a hypothetical wind-down after top US regulators found weaknesses in their plans.

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The so-called living wills of JPMorgan Chase & Co., Bank of America Corp., Goldman Sachs Group Inc. and Citigroup Inc. all had a “shortcoming,” the Federal Reserve and Federal Deposit Insurance Corp. said Friday. The regulators reviewed the most recent resolution plans, which were mandated following the 2008 financial crisis.

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“For the four banks with an identified shortcoming, the letters describe the specific weaknesses resulting in the shortcoming and the remedial actions required by the agencies,” the agencies said in a joint statement. The regulators didn’t identify weaknesses in the plans from Bank of New York Mellon Corp., Wells Fargo & Co., State Street Corp. or Morgan Stanley.

Bank of America, Goldman and JPMorgan declined to comment.

Citi said it was “fully committed to addressing the issues identified by our regulators.” The lender “will invest what is necessary to support this critical effort,” and is confident it could be resolved without taxpayer funds or negatively effecting the financial system, Citi said in a statement.

The Fed and FDIC diverged on the significance of the problems with Citi’s plan. The FDIC deemed the weakness to constitute a “deficiency,” a more severe finding. Because the two disagreed, Citi’s weakness was deemed a “shortcoming.”

The finding of a shortcoming doesn’t result in a penalty for banks. The regulators found issues with how each of the four banks’ plans dealt with derivatives.

According to the regulators, Citi’s plan could not add in “updated stress scenarios and assumptions.” They also said issues with data reliability contributed to inaccurate calculations regarding how much capital would required for executing the plan. Meanwhile, JPMorgan’s strategy couldn’t update some economic conditions in calculating the necessary capital and liquidity to carry out its plan, regulators said.

Bank of America’s living will plan wouldn’t work for some derivatives transactions, the agencies said, calling into question the firm’s ability to execute it. Goldman’s wind-down plan was found not to fully capture the complexity of its derivatives portfolio.

The regulators made their determinations based on plans submitted in 2023. The banks with weaknesses are required to deal with them in new resolution plans due July 1, 2025, according to the regulators.

--With assistance from Katherine Doherty, Todd Gillespie and Sridhar Natarajan.

(Updates with weaknesses identified by agencies starting in seventh paragraph.)

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