Citigroup has struggled to adequately train employees in risk, compliance and data roles, according to the bank's own assessment, shedding light on why it is taking it years to fix regulatory issues even as billions are spent on an overhaul.

Citi’s analysis, a portion of which was seen by Reuters and has not been previously reported, shows the bank has been grappling with a shortage of skilled personnel, finding at times that it did not have the right training and assessment tools to fix its regulatory challenges. The bank, which has for the past four years been operating under two regulatory reprimands, called consent orders, must resolve these problems for the decrees to be lifted.

In one place, for example, the analysis cites "insufficient compliance risk management skills” among staff directly dealing with such issues. The sections of the analysis seen by Reuters did not address why Citi had not been able to fix these issues. They were laid out in a December 2023 spreadsheet tracking Citi's progress on various aspects of the consent orders.

Separately, four sources familiar with the matter said the situation was further complicated when CEO Jane Fraser launched a massive exercise in September 2023 to simplify the bank, firing thousands of people and reducing the number of management layers there.

In the process, some staff involved in issues related to the consent orders were also let go, according to the sources.

Reuters could not independently determine whether the layoffs set back the bank's overall efforts to resolve the consent orders. Without providing specifics, Citi denied this, saying that "cherry picking numbers will paint a misleading picture."

"We continue to invest heavily in talent and training to ensure we have the right people and expertise in critical areas such as data, risk, controls and compliance,” the bank said in a statement. It added that it proactively assesses "the evolving skills needed so that we can hire" and enhance skills accordingly.

In response to questions posed by Reuters, Citi said further that it has invested billions of dollars in its "transformation," a project to address risks, controls and data management – issues raised in the 2020 consent orders from the U.S. Federal Reserve and the Office of the Comptroller of the Currency. The analysis seen by Reuters was done in response to the Fed’s consent order.

Citigroup said it had about 13,000 people dedicated to the project to overhaul its controls and systems, with thousands more supporting the effort across the bank. The bank has about 229,000 employees overall.

The Federal Reserve and the Office of the Comptroller of the Currency declined to comment.

CEO Jane Fraser has said previously that resolving Citi’s regulatory problems is a top priority. Regulators have said the bank's widespread risk and data flaws they have identified speak to its financial safety and soundness. The bank was put in the penalty box after it mistakenly sent nearly $900 million of its own funds in August 2020 to creditors of cosmetics company Revlon.

In July, the Fed and the OCC once again reprimanded and fined the bank. The OCC said Citi had “failed to make sufficient and sustainable progress” in complying with its consent order. The OCC also required it to enact a new quarterly process to ensure it devoted enough resources to meet compliance milestones. As of mid-July, the plan had not been agreed with regulators.

Last month, the company announced its technology head Tim Ryan would take on data management efforts alongside Chief Operating Officer Anand Selvakesari.

HARD PROBLEMS

The bank's analysis shines a light on why the problems are proving to be intractable. In one section, for example, the bank said its staff's technical skills, including on data governance -- policies that set out how data is handled -- needed to be improved. But then it also noted that when it came to data governance, its training curriculum did not sufficiently address "skills identified as needing enhancement."

It also identified areas such as data analytics and digital literacy as needing improvement.

For critical roles in compliance, the bank found it had not spelled out the skills that were needed to succeed. It also said it did not have an adequate assessment of whether employees had the right skills sets for those functions.

Citi did not comment on the specific issues raised in its analysis.

CITI LAYOFFS

The sources familiar with the bank's operations said Fraser's layoffs led to the removal of some of the people involved in regulatory work.

In risk management, for example, the bank laid off or redeployed 67 people out of a group of 441, according to a Citi document that lists some of the roles affected in one of the rounds of layoffs.

Some of the sources said the layoffs disrupted work because employees feared for their jobs and loss of managers at times meant lack of direction. But Citi challenged this view, saying it was careful to not let the layoffs affect work on consent orders.

"The facts speak for themselves, but cherry-picking numbers will paint a misleading picture of the significant resources dedicated to this effort," the bank said. "Our approach was disciplined and methodical, and prioritized protecting our ability to deliver on our regulatory commitments and accelerate this important work."

Source: The edge markets

The war on inflation is not over, but judging by the data, some battles have been won. In August, the annual rate of inflation was 2.5 percent in the United States and 2.2 percent in the eurozone. Core inflation, which excludes energy and food, was 3.2 percent and 2.8 percent in these areas respectively. Money printing has been brought under control and the proportional rise in prices has slowed since June 2022 in the U.S. and October 2022 in the eurozone. Central bankers have always claimed that their goal is low inflation (about 2 percent), rather than stable purchasing power for the dollar and euro. By that metric, success is in sight.

Moreover, the public is calm, expecting slowdowns in the price indexes before long. Most people are not aware that inflation has major redistributive effects, and that the low- and middle-income earners usually get hit. But workers realize that inflation ends up eroding their purchasing power; homeowners worry when rising nominal interest rates make their mortgages heavier; and pensioners know that under high inflation the real return on safe securities such as bonds drops to zero or turns negative. 

That said, big government and part of the business world have other priorities and possibly other plans. The 2 percent inflation target may not be the true target.

Red lines for monetary expansion

Governments traditionally like generous monetary policies in general, and money printing in particular. They believe that by increasing the money supply – for example, by manipulating interest rates – they can create economic growth, while newly printed money can be used to buy treasury bills, thus allowing policymakers to finance public expenditure “for free,” without resorting to taxation or private savings.

But things have changed. After the major blunders of the past couple of decades, the “print what it takes” mantra has now been replaced by the “prudent monetary policy” slogan, where “prudent” means that monetary policy should be as generous as possible without unleashing a rate of inflation judged intolerable to the electorate. This shift raises two big questions: What delineates the red line for monetary expansion, and how can policymakers ensure they do not cross this line? 

Both the U.S. and several European Union governments are currently in need of generous monetary policies and inflation support. This demand is not a recent development; as mentioned above, governments require additional revenue to manage public deficits.  They also benefit from low interest rates that reduce the cost of borrowing and debt-servicing and boost private investment and debt-financed households’ consumption. Governments also need inflation to rein in some key expenditure items in real terms (such as state pensions), reduce public indebtedness in real terms, and possibly enhance debt sustainability (the debt-to-GDP ratio).

There is no objective way to determine the point at which monetary profligacy becomes alarming, but it takes time – at least two years – before monetary policy fully translates into consumer price inflation. People’s unease depends on their short-term debt-servicing (interest rates are often linked to inflation) and on how much they depend on capital income (including pensions). Of course, the latter effect is larger in countries with older populations. In this light, government action can take three different paths, as described in corresponding scenarios.

Scenarios

Most likely: Gradual easing

Less likely: Defining boundaries 

Somewhat less likely: Abandoning prudence

Source: GIS

What does your research show about global trade patterns?

Why has the center of gravity of global trade in goods remained in Asia?

And trade routes to and from Europe aren’t growing?

Why haven’t changes in supply chains or deglobalization had a bigger effect?

What are the implications of this for the logistics and shipping companies you cover?

After 2½ years, US President Joe Biden’s Indo-Pacific Economic Framework for Prosperity (IPEF) is increasingly irrelevant due to its own limitations and broader US foreign policy shifts.

IPEF pillars

Unlike free trade agreements (FTAs), IPEF does not offer better market access by reducing tariff or non-tariff barriers. Instead, it has been styled as a standards agreement involving four “pillars”:

Fair and resilient trade: This imposes “high standard” rules, particularly for the digital economy, labour and environment. Enforcing such standards is now widely seen as protectionist.

Supply chain resilience: This seeks to establish reliable supply chains, bypassing China. Many countries hope to benefit from such “friendshoring”. However, most recent inflationary supply disruptions have been due to the new Cold War, pandemic and sanctions.

Infrastructure, clean energy and decarbonisation will supposedly enhance mitigation efforts, ignoring the adaptation priorities of developing countries.

Tax and anti-corruption: IPEF promises to improve tax information exchange and curb money laundering and bribery. But most developing countries have retrieved little from such efforts. Their recent experience with the Organisation for Economic Co-operation and Development-led Inclusive Framework for taxation has deepened such suspicions.

Each IPEF pillar involved separate negotiations, allowing partners to opt in or out. While this accommodates diverse interests, the resulting fragmentation undermines likely effectiveness. Even worse, IPEF is a White House initiative that lacks Congressional support, raising doubts about its longevity.

Great expectations, humble reality

Yet, Asia-Pacific interest in better US market access remains after President Donald Trump’s withdrawal from the Trans-Pacific Partnership (TPP) and Regional Comprehensive Economic Partnership (RCEP) agreements.

IPEF’s advent over half a decade after Trump withdrew from the TPP suggests it was never a Biden priority. The US caricatures and dismisses the RCEP as a “low standards” China-led agreement, but East Asia does not seem to agree.

Instead, the Biden administration has touted IPEF as a strong US-led response to the RCEP. However, its modest offer has further undermined Washington’s reputation, fuelling caution and scepticism.

Taiwan is part of the US-led Asia-Pacific Economic Cooperation, and Washington is believed to be surreptitiously promoting its independence. However, the island province has been excluded from IPEF, perhaps due to deliberate “strategic ambiguity”.

America First

The upcoming US presidential election compounds the uncertainty. If re-elected, former president Trump has promised to “knock out” IPEF, describing it as worse than the TPP.

Presidential candidate Kamala Harris has long been sceptical of international trade agreements, including the TPP. She is expected to replace Deputy Secretary of State Kurt Campbell, architect of President Barack Obama’s “pivot to Asia” via TPP and Biden’s IPEF.

The past decade has seen US domestic politics increasingly shaping foreign economic and trade policies, regardless of party affiliation, with protectionist sentiment surging in both parties.

Scepticism about FTAs and retreats from earlier US foreign policy “activism” have become bipartisan rather than only associated with Trump.

Bretton Woods exception?

Historically, the doctrine of Manifest Destiny drove territorial acquisitions in the American hemisphere, the US “backyard” since the Monroe Doctrine. At the same time, protectionist trade policies accelerated US industrialisation after the North won the Civil War.

Domestic politics favoured the US Neutrality Acts of the 1930s. The 1929 Crash led to the 1930 Smoot-Hawley Tariff Act, which raised import duties on thousands of goods.

The US’ international role grew significantly after World War II, creating post-war multilateral institutions such as the United Nations, International Monetary Fund, World Bank and General Agreement on Tariffs and Trade.

Creating regional blocs soon superseded President Franklin D Roosevelt’s multilateral legacy as the Cold War changed the perception of security threats and economic priorities. After the Cold War, the US briefly remained globally engaged as a unipolar power.

However, growing domestic discontent over economic globalisation and interventionist conflicts eroded support for earlier policies. Trump’s “America First” mantra has driven this shift, even challenging plurilateral trade agreements.

While the Biden administration has been “re-engaging” multilaterally to reassert dominance, protectionism has not been reduced, with some Trump-era tariffs on Chinese imports even increasing.

More actions against Chinese tech firms like Huawei reflect the bipartisan belief that previous free trade policies had inadvertently benefited China without securing the promised gains. With more rhetoric of “safeguarding” critical industries and technologies, bipartisan scepticism toward FTAs has grown.

Geopolitics, not geoeconomics

Neoliberals claimed economic liberalisation would lead to political liberalisation and strengthen the rule of law. Thomas Friedman even claimed countries with McDonald’s franchises would not go to war with one another.

China has not adopted the political reforms many in the West wanted. Instead, it looms larger on the world stage, pursuing policies at odds with US interests.

Likewise, the integration of post-Soviet Russia into the world economy via World Trade Organization and G8 membership was expected to align it with the West. But such efforts ended before Russia’s forcible entry into Crimea and, later, Ukraine.

Southeast Asian governments quickly realised IPEF was not a US political priority. Negotiating was intended not to offend the US. IPEF was supposed to reassert US leadership to counter China’s growing influence, but content-wise, it appears to be about setting standards serving US corporate interests.

US reluctance to offer tangible benefits, such as improved market access, has made IPEF less attractive, especially compared with China. IPEF’s limited ambition and commitments reflect the deeper malaise of US foreign policy.

As US domestic politics increasingly drive foreign policy, initiatives such as IPEF appear less viable. Hence, IPEF seems like the last gasp of a fast-fading approach to engagement rather than a blueprint for future cooperation.

Source: The edge markets