The US regulatory authority recently conducted a review of major banks such as JPMorgan Chase, Bank of America, Citigroup, and Goldman Sachs to determine whether they are willing to independently manage a large portfolio of derivative investments without relying on government assistance.
According to Reuters, the “wills” of these banks, which describe strategies for the safe liquidation of complex financial instruments during crises, were deemed insufficient by the Federal Reserve and the Federal Deposit Insurance Corporation (FDIC).
Specifically, Citigroup was 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 bankruptcy scenarios.
Derivatives played a crucial role in the 2008 financial crisis, exacerbating systemic risks and contributing to widespread economic instability when underlying assets such as mortgage loans could not be repaid.
According to Reuters, the massive scale of derivatives held by large banks highlights significant financial risks associated with them, and potential changes in risk management strategies pose a significant financial burden.
Regulatory authorities emphasize the need for these financial giants to strengthen their contingency planning, ensuring that they can obtain the necessary approvals and actions from international organizations to effectively execute their restructuring plans.