The US regulatory agency recently conducted a review of major banks such as JPMorgan Chase, Bank of America, Citigroup, and Goldman Sachs to determine if they are willing to independently manage a significant amount of derivative investment portfolios without relying on government assistance.
According to reports, the “willingness” of these banks describes their strategies for safely liquidating complex financial instruments during a crisis, but the Federal Reserve and the Federal Deposit Insurance Corporation (FDIC) believe that the banks’ “willingness” is inadequate.
In particular, Citigroup has been criticized for weaknesses in its data management and control systems, which hinder its ability to accurately assess the liquidity and capital requirements needed to manage derivative positions in the event of bankruptcy.
Derivative products played a crucial role in the 2008 financial crisis, exacerbating systemic risk and leading to widespread economic instability when underlying assets such as mortgages defaulted.
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According to Reuters, the large scale of derivative products held by major banks highlights significant financial risks associated with them, and potential changes in risk management strategies pose a major financial burden.
Regulatory authorities emphasize that these financial giants need to strengthen their emergency plans to ensure they can obtain necessary approvals and actions from international authorities to effectively implement restructuring plans.
