FDIC rejects Citigroup's 'living will', citing deficient data controls

US banking regulators have rejected Citigroup's 'living will', a plan designed to outline the bank's strategy for orderly winding down in the event of a catastrophic failure.

This decision marks a significant setback for Citigroup, which has been under regulatory pressure to enhance its risk controls for nearly four years.

FDIC's rejection of Citigroup's living will

In a closed-door meeting, the Federal Deposit Insurance Corporation’s (FDIC) five-member board voted to reject Citigroup's resolution plan.

This decision is part of the regulatory framework established after the financial crisis, which mandates that the nation’s largest banks maintain detailed plans to ensure their failure would not necessitate taxpayer bailouts or disrupt the broader financial system.

These plans are reviewed and recertified biennially by both the FDIC and the Federal Reserve.

The FDIC cited "deficient" data controls as the primary reason for the rejection, a downgrade from two years ago when the agency, along with the Fed, approved Citi’s living will but noted shortcomings in its data management.

The Federal Reserve has not yet conducted its vote on Citigroup’s living will.

Should both regulators reject the plan, Citigroup could face significant penalties.

Historical context and ongoing issues

Citigroup has a history of regulatory challenges. In late 2020, the bank was fined $400 million by the Federal Reserve and the Office of the Comptroller of the Currency for failing to address risk management and control issues.

This fine was partly due to an incident where Citigroup mistakenly transferred $900 million to creditors of Revlon, a cosmetics company.

At a recent investor conference, Citigroup executives acknowledged the slow pace of resolving regulatory issues. CEO Jane Fraser highlighted that addressing these regulatory concerns has been an area of lagging progress for the bank.

CFO Mark Mason reiterated Citigroup’s commitment to investing in modernizing its infrastructure and automating data and regulatory reporting processes.

Future implications

The rejection of Citigroup’s living will by the FDIC underscores the ongoing challenges the bank faces in meeting regulatory expectations.

The bank must now focus on rectifying the deficiencies highlighted by the FDIC to avoid potential penalties and further regulatory scrutiny.

The Federal Reserve's upcoming vote will be crucial in determining the immediate future of Citigroup’s regulatory standing.

Citigroup’s efforts to modernize and improve its risk management infrastructure are critical not only for regulatory compliance but also for maintaining confidence among investors and stakeholders.

As the bank continues to navigate these challenges, its ability to implement effective controls and demonstrate robust risk management will be key to its long-term stability and success.