US regulators have raised concerns regarding the contingency plans of JPMorgan Chase, Bank of America, Citibank, and Goldman Sachs for managing trillions of dollars in derivatives.

The Federal Reserve and Federal Deposit Insurance Corporation (FDIC) have criticized the banks’ “living wills,” which outline how they would unwind their derivatives portfolios without needing government assistance, according to Reuters.

In the case of Citigroup, regulators have pointed out flaws in the bank’s data management and control systems, which are affecting its calculations on the amount of liquidity and capital required to close derivatives positions in the event of bankruptcy.

Derivatives played a significant role in the 2008 financial crisis, exacerbating systemic risks and causing widespread losses and instability when mortgage assets defaulted.

According to Reuters, “Big banks hold derivatives with trillions of dollars in notional value, and any potential changes to how they manage the risk, liquidity, or contingent liabilities could be very costly.”

Regulators have emphasized the need for the banking giants to improve their contingency planning, including ensuring they can secure necessary approvals or actions from foreign governments to effectively implement their resolution plans.

Big banks are required to submit living wills as part of the Dodd-Frank Act, which was passed in response to the 2008 crisis.

The regulators have given the major banks until September to address these issues.

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