The resolution of the notices is a boost for chief executive Jane Fraser’s years-long goal of addressing risk management and control issues that have weighed on the bank’s profitability. — Reuters
NEW YORK: The US Federal Reserve (Fed) has told Citigroup it has closed formal notices requiring the bank to fix trading risk management weaknesses, according to sources, a significant step in improving oversight and control deficiencies that have bogged down the third-largest US bank.
The Fed in late 2023 issued Citi notices to address three so-called matters requiring immediate attention, or MRIAs, identifying problems relating to how the bank calculates and manages the risks of its trading partners and sets aside capital to cushion potential losses on those trades, Reuters previously reported.
Those notices have now been terminated, according to the sources.
Officials for Citi and the Fed board, which supervises big banks, declined to comment.
The resolution of the notices, which Reuters is reporting for the first time, is a boost for chief executive Jane Fraser’s years-long goal of addressing risk management and control issues that have weighed on the bank’s profitability.
One of Citi’s largest problems has been the inconsistency of the bank’s data, stemming from multiple systems not yet fully integrated after large acquisitions. Those issues have caused the bank to trip up and led to several regulatory reprimands.
Banks can have many outstanding MRIAs at any given time, but they are confidential and rarely come into public view.
The management team is expected to develop a robust plan to remedy MRIAs, with those changes then vetted by the regulator. Failure to address MRIAs can potentially lead to more serious sanctions, such as a regulatory rating downgrade.
One of the three MRIAs instructed Citi to improve its data and governance around how it sets aside capital to account for counterparty credit risks, Reuters reported.
Banks measure the riskiness of their derivatives business to help determine how much capital they need to set aside to withstand potential losses.
The other MRIAs related to how Citi uses proxies in calculating counterparty credit risk when the data is not available.
Another related to governance failings, specifically around lack of clarity over who is responsible in various legal entities of the bank, the source said.
US President Donald Trump’s pick to oversee regulation at the Fed, Michelle Bowman, is overhauling bank supervision, including the resolution of MRIAs.
In an October memo, a top Fed supervisor directed examiners to promptly terminate MRIAs once a bank’s internal audit function is satisfied the issue has been remediated, provided the Fed has determined the auditor’s overall work is satisfactory.
Aside from the MRIAs, Citi has also been working through other major regulatory punishments dating back years.
After mistakenly transmitting US$900mil to creditors on a Revlon loan in 2020, the bank has been operating under two regulatory punishments, called consent orders. — Reuters
