Only a handful of U.S. banks are so big that they have to tell the government how to manage them if they blow themselves up.
So we should be aware that four of those banks submitted instructions for unwinding themselves that did not fully comply with this governmental directive. Four might not sound like a lot, but it was four out of . Citigroup, JPMorgan Chase, Bank of America, and Goldman Sachs presented so-called “living wills” that were inadequate, regulators announced last Friday.
But some of the regulators didn’t fully agree with that. The living will process is a shared responsibility of both the Federal Deposit Insurance Corporation (FDIC) and the Federal Reserve. The FDIC was prepared to announce that Citigroup’s violation, which was more severe than that of the other three banks, constituted a “deficiency”—shorthand for saying that the plans wouldn’t actually unwind Citi in an orderly fashion if it got into trouble.
But the Fed disagreed, so Citi’s grade was softened to a “shortcoming.” Citigroup need only develop a remediation plan by September 1; the remedies that would involve serious changes to its business were dropped. In other words, Jerome Powell and the Fed weakened the consequences for Citigroup, relative to Joe Biden’s regulatory officials at the FDIC, who saw the living will plan as unworkable.
Keep in mind that one of the remedies for a deficient living will is literally to break up the business lines of the offending bank—for .
