WASHINGTON D.C. – The nation’s biggest banks aren’t ready to die. That’s the grim assessment released today by the Federal Deposit Insurance Corporation (FDIC) and the Federal Reserve Board, following a review of “living wills” – detailed plans outlining how these institutions would unwind in the event of catastrophic failure. The agencies flagged critical weaknesses in the plans submitted by Bank of America, Citigroup, Goldman Sachs, and JPMorgan Chase, suggesting a systemic risk remains very much alive.
These resolution plans, officially known as living wills, are supposed to demonstrate a bank’s strategy for orderly bankruptcy. The idea? Prevent another 2008-style bailout by ensuring a failing giant can be dismantled without dragging down the entire financial system. But the FDIC and Fed found the submissions from these four behemoths fell short. The agencies determined each identified weakness is a “shortcoming,” meaning it raises serious doubts about the feasibility of the plan.
Citigroup’s plan, however, is in deeper trouble. While the Federal Reserve deemed the weakness a “shortcoming,” the FDIC went further, labeling it a “deficiency” – a flaw so significant it could undermine the entire resolution process. This discrepancy is resolved by agency rules, resulting in Citigroup’s 2023 plan being officially deemed to have a shortcoming. To add insult to injury, the bank also has an unresolved shortcoming from its 2021 plan related to shoddy data management.
The agencies didn’t detail the specific nature of these shortcomings in their public release, but indicated they involve issues with contingency planning and securing necessary cooperation from foreign governments during a potential resolution. This suggests a lack of preparedness for cross-border complexities that would inevitably arise in the failure of a global financial institution. The lack of transparency is frustrating, but the message is clear: these banks aren’t as prepared as they claim to be.
Chairman Martin J. Gruenberg and Vice Chairman Travis Hill issued statements acknowledging the findings and emphasizing the need for improvement. The banks have until July 1, 2025, to address these shortcomings in their next submissions. Failure to do so could result in further regulatory action, but given the political realities, a slap on the wrist is more likely than any real accountability.
The full feedback letters to each bank are available on the FDIC and Federal Reserve websites, but don’t expect a full accounting of the problems. What’s clear is that despite years of planning and billions spent on compliance, the biggest banks remain a potential threat to the financial stability of the United States. Contact Julianne Fisher Breitbeil at (202) 340-2043 (FDIC) or Meg Nelson at (202) 452-2955 (FRB) for more information. The clock is ticking, and the stakes couldn’t be higher.
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