Banking regulators on Friday disclosed that they found

weaknesses in the resolution plans of four of the eight largest

American lenders.

The Federal Reserve and the Federal Deposit Insurance Corp.

said the so-called living wills — plans for unwinding huge
institutions in the event of distress or failure —
of Citigroup, JPMorgan Chase, Goldman Sachs and Bank of
America filed in 2023 were inadequate.

Regulators found fault with the way each of the banks planned
to unwind their massive derivatives portfolios. Derivatives are
Wall Street contracts tied to stocks, bonds, currencies or
interest rates.

For example, when asked to quickly test Citigroup’s ability to

unwind its contracts using different inputs than those chosen
by the bank, the firm came up short, according to the
regulators. That part of the exercise appears to have snared
all the banks that struggled with the exam.

“An assessment of the covered company’s capability to unwind

its derivatives portfolio under conditions that differ from those
specified in the 2023 plan revealed that the firm’s capabilities
have material limitations,” regulators said of Citigroup.

The living wills are a key regulatory exercise mandated in the

aftermath of the 2008 global financial crisis. Every other year,
the largest US. banks must submit their plans to credibly
unwind themselves in the event of catastrophe. Banks with
weaknesses have to address them in the next wave of living
will submissions due in 2025.

While JPMorgan, Goldman and Bank of America’s plans were

each deemed to have a “shortcoming” by both regulators,
Citigroup was considered by the FDIC to have a more serious
“deficiency,” meaning the plan wouldn’t allow for an orderly
resolution under U.S. bankruptcy code.

Since the Fed didn’t concur with the FDIC on its assessment of
Citigroup, the bank did receive the less-serious “shortcoming”
grade.

“We are fully committed to addressing the issues identified by

our regulators,” New York-based Citigroup said in a statement.

“While we’ve made substantial progress on our transformation,

we’ve acknowledged that we have had to accelerate our work
in certain areas,” the bank said. “More broadly, we continue to
have confidence that Citi could be resolved without an adverse
systemic impact or the need for taxpayer funds.”

JPMorgan, Goldman and Bank of America declined a request to

comment from CNBC.