Regulators Find Weaknesses in Wall Street Banks’ Wind-Down Plans

Top US regulators have identified weaknesses in the living wills of four major Wall Street banks, including JPMorgan Chase & Co., Bank of America Corp., Goldman Sachs Group Inc., and Citigroup Inc. The Federal Reserve and Federal Deposit Insurance Corp. found shortcomings in the banks’ plans for a hypothetical wind-down, which were mandated following the 2008 financial crisis.

The regulators did not identify weaknesses in the plans of Bank of New York Mellon Corp., Wells Fargo & Co., State Street Corp., or Morgan Stanley. However, the four banks with identified shortcomings have been instructed to address the specific weaknesses and take remedial actions as required by the agencies.

While Bank of America, Goldman, and JPMorgan declined to comment on the findings, Citigroup stated that it is fully committed to addressing the issues identified by regulators and will invest what is necessary to support this critical effort. The regulators found issues with how each of the four banks’ plans dealt with derivatives, with specific concerns raised about data reliability and accuracy in calculating necessary capital for executing the plans.

The regulators determined that Citi’s plan had deficiencies in updating stress scenarios and assumptions, while JPMorgan’s plan lacked updates on economic conditions for calculating necessary capital and liquidity. Bank of America’s plan was found to have issues with derivatives transactions, and Goldman’s plan did not fully capture the complexity of its derivatives portfolio.

The banks with weaknesses are required to address these issues in new resolution plans due by July 1, 2025. While the finding of a shortcoming does not result in a penalty for the banks, it highlights the importance of having robust and effective wind-down plans in place to ensure financial stability and prevent the need for taxpayer funds in the event of a crisis.