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JPMorgan Chase, Bank of America and Citibank Accused of Holding Trillions of Dollars in Derivatives Without Proper Contingency Plans: Report
U.S. regulators accuse JPMorgan Chase, Bank of America, Citibank and Goldman Sachs of having banks' contingency plans for trillions of dollars in derivatives.
The Federal Reserve and Federal Deposit Insurance Corporation (FDIC) say so-called "lender wills" that detail how banks could safely wind down their derivatives portfolios without requiring government bailouts are insufficient, Reuters reports.
Specifically at Citigroup, regulators say deficiencies in the bank's data management and control systems are distorting the bank's calculations of how much liquidity and capital it will need to close out its derivatives positions in the event of bankruptcy.
The use of derivatives played a central role in the 2008 financial crisis, significantly increasing systemic risks and causing widespread losses and instability if underlying mortgage assets defaulted.
According to Reuters,
“Large banks hold trillions of dollars of derivatives at face value, and potential changes to how they manage risk, liquidity or contingent liabilities in those portfolios could be extremely expensive.”
The agency said banking giants need to "address contingency planning issues," including ensuring that lenders can obtain the necessary approvals or actions from foreign governments to effectively implement their resolution plans.
Large banks are required to file living wills under the Dodd-Frank Act passed after 2008.
US regulators are giving large banks until September to correct their shortcomings.
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