Four of America's largest banks have been ordered by US regulators to strengthen their plans for potential bankruptcy, with Citigroup facing particularly severe criticism.

The Federal Reserve and Federal Deposit Insurance Corporation (FDIC) have instructed Bank of America, Citigroup, Goldman Sachs, and JPMorgan Chase to refine their 'living wills' - detailed plans outlining how they could safely unwind in the event of a financial crisis. The regulators specifically highlighted the need for improved strategies to manage the banks' vast derivatives portfolios, which hold trillions of dollars in notional value.

In a notable development, the FDIC escalated its concerns about Citigroup's plan to a 'deficiency', deeming it not credible. However, the Federal Reserve did not concur with this assessment, sparing Citigroup from potential additional regulatory restrictions or forced divestitures.

Citigroup's issues stem from weaknesses in its data and controls, leading to inaccurate calculations of liquidity and capital requirements for unwinding derivatives positions. The bank has been grappling with regulatory concerns over its data management for several years.

In response, Citigroup stated: "We are fully committed to addressing the issues identified by our regulators. While we've made substantial progress on our transformation, we've acknowledged that we have had to accelerate our work in certain areas, including improving data quality and regulatory processes."

The banks are required to outline their plans to address these shortcomings by September, with detailed improvements to be included in their next living will submissions in 2025.

This regulatory scrutiny comes in the wake of Credit Suisse's collapse last year, which raised questions about the effectiveness of such resolution plans. Consequently, regulators are now demanding that banks address contingency planning and consider necessary actions from foreign governments in their plans.

Notably, regulators did not identify problems in the plans submitted by Wells Fargo & Co, Bank of New York Mellon, State Street, or Morgan Stanley.

As the banking sector continues to navigate complex regulatory landscapes, these developments underscore the ongoing challenges in ensuring the stability and resilience of major financial institutions.

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