The US regulatory agency 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.
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), according to Reuters.
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 necessary for managing derivative positions in bankruptcy scenarios.
Derivatives played a key 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 paid off.
Read more:
The escalating conflict between Russia and the United States strengthens the renminbi
According to Reuters, the massive scale of derivatives held by major banks underscores the significant financial risks associated with them, as 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 they can obtain the necessary approvals and actions from international organizations to effectively execute their restructuring plans.
