U.S. Regulators Raise Concerns Over Citigroup’s Default Risk Measurement
U.S. regulators have expressed concerns over Citigroup’s measurement of default risk and have urged the bank to make immediate changes. The Federal Reserve sent three notices to Citigroup late last year, directing the bank to address how it measures the risk of default by counterparties in derivative transactions. These regulatory concerns come as Citigroup works to resolve long-standing deficiencies in risk management, data governance, and internal controls.
Citigroup’s internal auditors have also found the bank’s plan to improve internal oversight to be lacking. The bank’s internal audit unit has highlighted the need for more work to address problems previously raised by regulators. Meeting regulatory expectations is a top priority for Citigroup, as regulators have the authority to restrict the bank’s growth and demand changes in senior management or the board.
Federal Reserve Notices Highlight Data and Governance Issues
The Federal Reserve notices, referred to as Matters Requiring Immediate Attention, specifically focus on improving Citigroup’s data and governance in relation to capital allocation for counterparty credit risks. The bank has been given deadlines of six and twelve months to address these issues. One concern raised is Citigroup’s use of proxies to calculate counterparty credit risk when data is not available. The other concern relates to governance failings within the bank.
Consent Orders Outline Key Issues and Steps for Resolution
In addition to the Federal Reserve notices, Citigroup has two consent orders outlining the major issues the bank needs to resolve. The progress towards resolving these issues is broken down into smaller steps. It is important for the bank to address each of these steps as failure to do so can hinder the bank’s ability to resolve the main issues, even if progress has been made in other areas. The bank’s internal audit unit has identified a “corrective action plan” related to oversight, which is included in both consent orders. The original due date for this plan was June 30, 2022, but it has since been revised to September 30, 2023. Citigroup has set a target date of July 31, 2024, to clear the audit.
Citigroup Committed to Meeting Regulatory Expectations
Citigroup has stated its commitment to meeting regulators’ expectations and is making steady progress in simplifying and modernizing the bank. Resolving the regulatory issues is crucial for Citigroup’s future growth and stability. The impact of these issues on Citigroup’s overall efforts to resolve its regulatory problems remains unclear. Neither the Federal Reserve nor the Office of the Comptroller of the Currency have commented on the matter.
Analyst comment
Negative news. The U.S. regulators’ concerns and internal audit findings indicate Citigroup’s deficiencies in risk management and oversight. Market impact: Citigroup’s growth may be restricted, senior management changes may be demanded. The bank has deadlines to address data and governance issues. Failure to address these steps can hinder resolution. The impact on Citigroup’s regulatory problems is unclear.
