Citi Fails Fed Stress Test, Stock Tanks

The Federal Reserve has just released its Comprehensive Capital Analysis and Review, a stress test of major banks operating in the United States.

Citi is the only megabank headquartered in the U.S. to fail the stress test, and shares are dropping fast - they are now down more than 4% in after-hours trading.

Below is the Fed's explanation for its rejection of Citi's capital plan:

The Federal Reserve's objection to Citigroup's CCAR 2014 capital plan in part reflects significantly heightened supervisory expectations for the largest and most complex BHCs in all aspects of capital planning.11 While Citigroup has made considerable progress in improving its general risk-management and control practices over the past several years, its 2014 capital plan reflected a number of deficiencies in its capital planning practices, including in some areas that had been previously identified by supervi- sors as requiring attention, but for which there was not sufficient improvement. Practices with specific deficiencies included Citigroup's ability to project revenue and losses under a stressful scenario for material parts of the firm's global operations, and its ability to develop scenarios for its internal stress test- ing that adequately reflect and stress its full range of business activities and exposures. Taken in isolation, each of the deficiencies would not have been deemed critical enough to warrant an objection, but, when viewed together, they raise sufficient concerns regard- ing the overall reliability of Citigroup's capital plan- ning process to warrant an objection to the capital plan and require a resubmission.

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