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Central banks needed more U. To accommodate these needs, the Bretton Woods system depended on the United States to run dollar deficits. As a consequence, the dollar's value began exceeding its gold backing. During the early s, investors could sell gold for a greater dollar exchange rate in London than in the United States, signaling to market participants that the dollar was overvalued.
Belgian-American economist Robert Triffin defined this problem now known as the Triffin dilemma , in which a country's national economic interests conflict with its international objectives as the custodian of the world's reserve currency.
France voiced concerns over the artificially low price of gold in and called for returns to the former gold standard. Meanwhile, excess dollars flowed into international markets as the United States expanded its money supply to accommodate the costs of its military campaign in the Vietnam War.
Its gold reserves were assaulted by speculative investors following its first current account deficit since the 19th century. The closure of the gold window effectively shifted the adjustment burdens of a devalued dollar to other nations. Speculative traders chased other currencies and began selling dollars in anticipation of these currencies being revalued against the dollar. These influxes of capital presented difficulties to foreign central banks, which then faced choosing among inflationary money supplies, largely ineffective capital controls, or floating exchange rates.
The agreement delayed the system's demise for a further two years. Once the world's reserve currency began to float, other nations began adopting floating exchange rate regimes. As part of the first amendment to its articles of agreement in , the IMF developed a new reserve instrument called special drawing rights SDRs , which could be held by central banks and exchanged among themselves and the Fund as an alternative to gold.
The basket's composition changed over time and presently consists of the U. Beyond holding them as reserves, nations can denominate transactions among themselves and the Fund in SDRs, although the instrument is not a vehicle for trade.
In international transactions, the currency basket's portfolio characteristic affords greater stability against the uncertainties inherent with free floating exchange rates. The Fund initially issued 9. IMF members signed the Jamaica Agreement in January , which ratified the end of the Bretton Woods system and reoriented the Fund's role in supporting the international monetary system. The agreement officially embraced the flexible exchange rate regimes that emerged after the failure of the Smithsonian Agreement measures.
In tandem with floating exchange rates, the agreement endorsed central bank interventions aimed at clearing excessive volatility. The agreement retroactively formalized the abandonment of gold as a reserve instrument and the Fund subsequently demonetized its gold reserves, returning gold to members or selling it to provide poorer nations with relief funding. Developing countries and countries not endowed with oil export resources enjoyed greater access to IMF lending programs as a result.
The Fund continued assisting nations experiencing balance of payments deficits and currency crises, but began imposing conditionality on its funding that required countries to adopt policies aimed at reducing deficits through spending cuts and tax increases, reducing protective trade barriers, and contractionary monetary policy.
The second amendment to the articles of agreement was signed in It legally formalized the free-floating acceptance and gold demonetization achieved by the Jamaica Agreement, and required members to support stable exchange rates through macroeconomic policy.
The post-Bretton Woods system was decentralized in that member states retained autonomy in selecting an exchange rate regime. The amendment also expanded the institution's capacity for oversight and charged members with supporting monetary sustainability by cooperating with the Fund on regime implementation.
Under the dominance of flexible exchange rate regimes, the foreign exchange markets became significantly more volatile. In , newly elected U. President Ronald Reagan 's administration brought about increasing balance of payments deficits and budget deficits. To finance these deficits, the United States offered artificially high real interest rates to attract large inflows of foreign capital.
As foreign investors' demand for U. The G5 met in September at the Plaza Hotel in New York City and agreed that the dollar should depreciate against the major currencies to resolve the United States' trade deficit and pledged to support this goal with concerted foreign exchange market interventions, in what became known as the Plaza Accord. To address these concerns, the G7 now G8 held a summit in Paris in , where they agreed to pursue improved exchange rate stability and better coordinate their macroeconomic policies, in what became known as the Louvre Accord.
This accord became the provenance of the managed float regime by which central banks jointly intervene to resolve under- and overvaluations in the foreign exchange market to stabilize otherwise freely floating currencies. Exchange rates stabilized following the embrace of managed floating during the s, with a strong U.
After the stock market correction of the Dot-com bubble the country's trade deficit grew, the September 11 attacks increased political uncertainties, and the dollar began to depreciate in Following the Smithsonian Agreement, member states of the European Economic Community adopted a narrower currency band of 1. The snake proved unsustainable as it did not compel EEC countries to coordinate macroeconomic policies.
The EMS featured two key components: The weights within the ECU changed in response to variances in the values of each currency in its basket. Under the ERM, if an exchange rate reached its upper or lower limit within a 2. The requirement of cooperative market intervention marked a key difference from the Bretton Woods system. Similarly to Bretton Woods however, EMS members could impose capital controls and other monetary policy shifts on countries responsible for exchange rates approaching their bounds, as identified by a divergence indicator which measured deviations from the ECU's value.
The Uruguay Round of GATT multilateral trade negotiations took place from to , with nations becoming party to agreements achieved throughout the negotiations. Among the achievements were trade liberalization in agricultural goods and textiles, the General Agreement on Trade in Services , and agreements on intellectual property rights issues.
The WTO is a chartered multilateral trade organization, charged with continuing the GATT mandate to promote trade, govern trade relations, and prevent damaging trade practices or policies. It became operational in January Compared with its GATT secretariat predecessor, the WTO features an improved mechanism for settling trade disputes since the organization is membership-based and not dependent on consensus as in traditional trade negotiations.
This function was designed to address prior weaknesses, whereby parties in dispute would invoke delays, obstruct negotiations, or fall back on weak enforcement. Financial integration among industrialized nations grew substantially during the s and s, as did liberalization of their capital accounts. The resulting interdependence also carried a substantive cost in terms of shared vulnerabilities and increased exposure to systemic risks.
Economists have argued greater worldwide financial integration has resulted in more volatile capital flows, thereby increasing the potential for financial market turbulence. Given greater integration among nations, a systemic crisis in one can easily infect others. Following research of systemic crises that plagued developing countries throughout the s, economists have reached a consensus that liberalization of capital flows carries important prerequisites if these countries are to observe the benefits offered by financial globalization.
Such conditions include stable macroeconomic policies, healthy fiscal policy, robust bank regulations , and strong legal protection of property rights. Economists largely favor adherence to an organized sequence of encouraging foreign direct investment , liberalizing domestic equity capital , and embracing capital outflows and short-term capital mobility only once the country has achieved functioning domestic capital markets and established a sound regulatory framework.
If a country embraces unrestrained access to foreign capital markets without maintaining a credible currency, it becomes vulnerable to speculative capital flights and sudden stops , which carry serious economic and social costs. Countries sought to improve the sustainability and transparency of the global financial system in response to crises in the s and s. The Basel Committee on Banking Supervision was formed in by the G members' central bank governors to facilitate cooperation on the supervision and regulation of banking practices.
The committee has held several rounds of deliberation known collectively as the Basel Accords. The first of these accords, known as Basel I , took place in and emphasized credit risk and the assessment of different asset classes.
Basel I was motivated by concerns over whether large multinational banks were appropriately regulated, stemming from observations during the s Latin American debt crisis. Following Basel I, the committee published recommendations on new capital requirements for banks, which the G nations implemented four years later. In , the G established the Financial Stability Forum reconstituted by the G in as the Financial Stability Board to facilitate cooperation among regulatory agencies and promote stability in the global financial system.
The Forum was charged with developing and codifying twelve international standards and implementation thereof.
It was motivated by what were seen as inadequacies of the first accord such as insufficient public disclosure of banks' risk profiles and oversight by regulatory bodies.
Members were slow to implement it, with major efforts by the European Union and United States taking place as late as and The first stage centered on liberalizing capital mobility and aligning macroeconomic policies between countries.
Key to the Maastricht Treaty was the outlining of convergence criteria that EU members would need to satisfy before being permitted to proceed. The third and final stage introduced a common currency for circulation known as the Euro , adopted by eleven of then-fifteen members of the European Union in January In doing so, they disaggregated their sovereignty in matters of monetary policy. These countries continued to circulate their national legal tenders, exchangeable for euros at fixed rates, until when the ECB began issuing official Euro coins and notes.
As of [update] , the EMU comprises 17 nations which have issued the Euro, and 11 non-Euro states. Following the market turbulence of the s financial crises and September 11 attacks on the U.
The United States experienced growth in the size and complexity of firms engaged in a broad range of financial services across borders in the wake of the Gramm—Leach—Bliley Act of which repealed the Glass—Steagall Act of , ending limitations on commercial banks' investment banking activity.
The global financial crisis precipitated in and shared some of the key features exhibited by the wave of international financial crises in the s, including accelerated capital influxes, weak regulatory frameworks, relaxed monetary policies, herd behavior during investment bubbles , collapsing asset prices, and massive deleveraging. The systemic problems originated in the United States and other advanced nations. Particularly in the United States, the crisis was characterized by growing securitization of non-performing assets , large fiscal deficits, and excessive financing in the housing sector.
As its contagious effects began infecting other nations, the crisis became a precursor for the global economic downturn now referred to as the Great Recession. The global financial crisis demonstrated the negative effects of worldwide financial integration, sparking discourse on how and whether some countries should decouple themselves from the system altogether. In , a newly elected government in Greece revealed the falsification of its national budget data, and that its fiscal deficit for the year was Investors concerned about a possible sovereign default rapidly sold Greek bonds.
Given Greece's prior decision to embrace the euro as its currency, it no longer held monetary policy autonomy and could not intervene to depreciate a national currency to absorb the shock and boost competitiveness, as was the traditional solution to sudden capital flight.
Ratings agencies downgraded these countries' debt instruments in which further increased the costliness of refinancing or repaying their national debts. The crisis continued to spread and soon grew into a European sovereign debt crisis which threatened economic recovery in the wake of the Great Recession.
Additionally, the ECB pledged to purchase bonds from troubled eurozone nations in an effort to mitigate the risk of a banking system panic.
The crisis is recognized by economists as highlighting the depth of financial integration in Europe, contrasted with the lack of fiscal integration and political unification necessary to prevent or decisively respond to crises. During the initial waves of the crisis, the public speculated that the turmoil could result in a disintegration of the eurozone and an abandonment of the euro.
German Federal Minister of Finance Wolfgang Schäuble called for the expulsion of offending countries from the eurozone. Now commonly referred to as the Eurozone crisis, it has been ongoing since and most recently began encompassing the —13 Cypriot financial crisis.
The balance of payments accounts summarize payments made to or received from foreign countries. Receipts are considered credit transactions while payments are considered debit transactions.
The balance of payments is a function of three components: The financial account summarizes the value of exports versus imports of assets, and the capital account summarizes the value of asset transfers received net of transfers given. The capital account also includes the official reserve account, which summarizes central banks' purchases and sales of domestic currency, foreign exchange, gold, and SDRs for purposes of maintaining or utilizing bank reserves.
Because the balance of payments sums to zero, a current account surplus indicates a deficit in the asset accounts and vice versa. A current account surplus or deficit indicates the extent to which a country is relying on foreign capital to finance its consumption and investments, and whether it is living beyond its means.
A net exporter of financial assets is known as a borrower, exchanging future payments for current consumption. Further, a net export of financial assets indicates growth in a country's debt. From this perspective, the balance of payments links a nation's income to its spending by indicating the degree to which current account imbalances are financed with domestic or foreign financial capital, which illuminates how a nation's wealth is shaped over time.
If countries experiencing a growth in demand have trouble sustaining a healthy balance of payments, demand can slow, leading to: A country's external wealth is measured by the value of its foreign assets net of its foreign liabilities. A current account surplus and corresponding financial account deficit indicates an increase in external wealth while a deficit indicates a decrease. Aside from current account indications of whether a country is a net buyer or net seller of assets, shifts in a nation's external wealth are influenced by capital gains and capital losses on foreign investments.
Having positive external wealth means a country is a net lender or creditor in the world economy , while negative external wealth indicates a net borrower or debtor. Nations and international businesses face an array of financial risks unique to foreign investment activity. Political risk is the potential for losses from a foreign country's political instability or otherwise unfavorable developments, which manifests in different forms.
Transfer risk emphasizes uncertainties surrounding a country's capital controls and balance of payments. Operational risk characterizes concerns over a country's regulatory policies and their impact on normal business operations.
Control risk is born from uncertainties surrounding property and decision rights in the local operation of foreign direct investments. For example, foreign governments may commit to a sovereign default or otherwise repudiate their debt obligations to international investors without any legal consequence or recourse.
Governments may decide to expropriate or nationalize foreign-held assets or enact contrived policy changes following an investor's decision to acquire assets in the host country. Each of the core economic functions, consumption, production, and investment, have become highly globalized in recent decades. While consumers increasingly import foreign goods or purchase domestic goods produced with foreign inputs, businesses continue to expand production internationally to meet an increasingly globalized consumption in the world economy.
International financial integration among nations has afforded investors the opportunity to diversify their asset portfolios by investing abroad. Central banks such as the European Central Bank or the U. Federal Reserve System undertake open market operations in their efforts to realize monetary policy goals. Explicit goals of financial regulation include countries' pursuits of financial stability and the safeguarding of unsophisticated market players from fraudulent activity, while implicit goals include offering viable and competitive financial environments to world investors.
In a global context however, no central political authority exists which can extend these arrangements globally. Rather, governments have cooperated to establish a host of institutions and practices that have evolved over time and are referred to collectively as the international financial architecture. National governments may employ their finance ministries, treasuries, and regulatory agencies to impose tariffs and foreign capital controls or may use their central banks to execute a desired intervention in the open markets.
Some degree of self-regulation occurs whereby banks and other financial institutions attempt to operate within guidelines set and published by multilateral organizations such as the International Monetary Fund or the Bank for International Settlements particularly the Basel Committee on Banking Supervision and the Committee on the Global Financial System .
Public and private arrangements exist to assist and guide countries struggling with sovereign debt payments, such as the Paris Club and London Club. Research and academic institutions, professional associations, and think-tanks aim to observe, model, understand, and publish recommendations to improve the transparency and effectiveness of the global financial system. The IMF has reported that the global financial system is on a path to improved financial stability, but faces a host of transitional challenges borne out by regional vulnerabilities and policy regimes.
One challenge is managing the United States' disengagement from its accommodative monetary policy. Doing so in an elegant, orderly manner could be difficult as markets adjust to reflect investors' expectations of a new monetary regime with higher interest rates. Interest rates could rise too sharply if exacerbated by a structural decline in market liquidity from higher interest rates and greater volatility, or by structural deleveraging in short-term securities and in the shadow banking system particularly the mortgage market and real estate investment trusts.
Other central banks are contemplating ways to exit unconventional monetary policies employed in recent years. Some nations however, such as Japan, are attempting stimulus programs at larger scales to combat deflationary pressures. The Eurozone's nations implemented myriad national reforms aimed at strengthening the monetary union and alleviating stress on banks and governments.
Yet some European nations such as Portugal, Italy, and Spain continue to struggle with heavily leveraged corporate sectors and fragmented financial markets in which investors face pricing inefficiency and difficulty identifying quality assets.
Banks operating in such environments may need stronger provisions in place to withstand corresponding market adjustments and absorb potential losses. Emerging market economies face challenges to greater stability as bond markets indicate heightened sensitivity to monetary easing from external investors flooding into domestic markets, rendering exposure to potential capital flights brought on by heavy corporate leveraging in expansionary credit environments.
Policymakers in these economies are tasked with transitioning to more sustainable and balanced financial sectors while still fostering market growth so as not to provoke investor withdrawal.
The global financial crisis and Great Recession prompted renewed discourse on the architecture of the global financial system. These events called to attention financial integration, inadequacies of global governance , and the emergent systemic risks of financial globalization. This has fundamentally altered the paradigm in which international financial institutions operate, increasing the complexities of the IMF and World Bank's mandates.
He has also drawn attention to calls for increased participation from the private sector in the management of financial crises and the augmenting of multilateral institutions' resources.
The Council on Foreign Relations ' assessment of global finance notes that excessive institutions with overlapping directives and limited scopes of authority, coupled with difficulty aligning national interests with international reforms, are the two key weaknesses inhibiting global financial reform.
Nations do not presently enjoy a comprehensive structure for macroeconomic policy coordination, and global savings imbalances have abounded before and after the global financial crisis to the extent that the United States' status as the steward of the world's reserve currency was called into question. Post-crisis efforts to pursue macroeconomic policies aimed at stabilizing foreign exchange markets have yet to be institutionalized. The lack of international consensus on how best to monitor and govern banking and investment activity threatens the world's ability to prevent future global financial crises.
The slow and often delayed implementation of banking regulations that meet Basel III criteria means most of the standards will not take effect until , rendering continued exposure of global finance to unregulated systemic risks. Despite Basel III and other efforts by the G20 to bolster the Financial Stability Board's capacity to facilitate cooperation and stabilizing regulatory changes, regulation exists predominantly at the national and regional levels.
Council of Economic Advisers Joseph E. Stiglitz referred in the late s to a growing consensus that something is wrong with a system having the capacity to impose high costs on a great number of people who are hardly even participants in international financial markets, neither speculating on international investments nor borrowing in foreign currencies. He argued that foreign crises have strong worldwide repercussions due in part to the phenomenon of moral hazard , particularly when many multinational firms deliberately invest in highly risky government bonds in anticipation of a national or international bailout.
Although crises can be overcome by emergency financing, employing bailouts places a heavy burden on taxpayers living in the afflicted countries, and the high costs damage standards of living.
Stiglitz has advocated finding means of stabilizing short-term international capital flows without adversely affecting long-term foreign direct investment which usually carries new knowledge spillover and technological advancements into economies. American economist and former Chairman of the Federal Reserve Paul Volcker has argued that the lack of global consensus on key issues threatens efforts to reform the global financial system.
He has argued that quite possibly the most important issue is a unified approach to addressing failures of systemically important financial institutions, noting public taxpayers and government officials have grown disillusioned with deploying tax revenues to bail out creditors for the sake of stopping contagion and mitigating economic disaster.
Volcker has expressed an array of potential coordinated measures: Governor of the Bank of England and former Governor of the Bank of Canada Mark Carney has described two approaches to global financial reform: Strengthening financial institutions necessitates stronger capital requirements and liquidity provisions, as well as better measurement and management of risks.
The G agreed to new standards presented by the Basel Committee on Banking Supervision at its summit in Pittsburgh , Pennsylvania. The standards included leverage ratio targets to supplement other capital adequacy requirements established by Basel II. Improving the resiliency of the global financial system requires protections that enable the system to withstand singular institutional and market failures.
Carney has argued that policymakers have converged on the view that institutions must bear the burden of financial losses during future financial crises, and such occurrences should be well-defined and pre-planned.
He suggested other national regulators follow Canada in establishing staged intervention procedures and require banks to commit to what he termed "living wills" which would detail plans for an orderly institutional failure. At its summit in Seoul , South Korea , the G collectively endorsed a new collection of capital adequacy and liquidity standards for banks recommended by Basel III.
Andreas Dombret of the Executive Board of Deutsche Bundesbank has noted a difficulty in identifying institutions that constitute systemic importance via their size, complexity, and degree of interconnectivity within the global financial system, and that efforts should be made to identify a group of 25 to 30 indisputable globally systemic institutions.
He has suggested they be held to standards higher than those mandated by Basel III, and that despite the inevitability of institutional failures, such failures should not drag with them the financial systems in which they participate. Dombret has advocated for regulatory reform that extends beyond banking regulations and has argued in favor of greater transparency through increased public disclosure and increased regulation of the shadow banking system.
Dudley has argued that a global financial system regulated on a largely national basis is untenable for supporting a world economy with global financial firms. In , he advocated five pathways to improving the safety and security of the global financial system: From Wikipedia, the free encyclopedia. List of banking crises. Reciprocal Trade Agreements Act. General Agreement on Tariffs and Trade. List of free trade agreements and List of international trade topics.
Currency crisis and Sovereign default. Economic and Monetary Union of the European Union. Financial crisis of —08 and Great Recession. European debt crisis and Great Recession in Europe. List of multinational corporations and List of investment banks. The chairmen of both parent companies, John S. The remaining provisions of the Glass—Steagall Act —enacted following the Great Depression—forbade banks to merge with insurance underwriters, and meant Citigroup had between two and five years to divest any prohibited assets.
However, Weill stated at the time of the merger that they believed "that over that time the legislation will change He oversaw its network of branches. He's rough on the edges. But Citibank knows the bank as an institution is in trouble—it can't get away anymore with passive selling—and Plumeri has all the passion to throw a glass of cold water on the bank.
In , Citigroup made additional acquisitions: The company spun off its Travelers Property and Casualty insurance underwriting business in It was also difficult to sell insurance directly to its customers since most customers were accustomed to purchasing insurance through a broker.
Travelers merged with The St. In spite of divesting Travelers Insurance, Citigroup retained Travelers' signature red umbrella logo as its own until February , when Citigroup agreed to sell the logo back to St. Paul Travelers,  which renamed itself Travelers Companies. Citigroup also decided to adopt the corporate brand "Citi" for itself and virtually all its subsidiaries, except Primerica and Banamex. Heavy exposure to troubled mortgages in the form of collateralized debt obligation CDOs , compounded by poor risk management, led Citigroup into trouble as the subprime mortgage crisis worsened The company had used elaborate mathematical risk models which looked at mortgages in particular geographical areas, but never included the possibility of a national housing downturn, or the prospect that millions of mortgage holders would default on their mortgages.
Trading head Thomas Maheras was close friends with senior risk officer David Bushnell, which undermined risk oversight. Bowen III , the chief underwriter of Citigroup's Consumer Lending Group, began warning the board of directors about the extreme risks being taken on by the mortgage operation that could potentially result in massive losses.
Bowen's responsibility was essentially to serve as the quality control supervisor ensuring the unit's creditworthiness. Many of the mortgages were not only defective, but were a result of mortgage fraud. Bowen attempted to rouse the board via weekly reports and other communications.
On November 3, , Bowen emailed Citigroup Chairman Robert Rubin and the bank's chief financial officer , head auditor and the chief risk management officer to again expose the risk and potential losses, claiming that the group's internal controls had broken down and requesting an outside investigation of his business unit. The subsequent investigation revealed that at the Consumer Lending Group had suffered a breakdown of internal controls since Regardless of the findings of the investigation, Bowen's charges were ignored, despite the fact that withholding such information from shareholders violated the Sarbanes—Oxley Act SOX , which he had pointed out.
Citigroup eventually stripped Bowen of most of his responsibilities and informing him that his physical presence was no longer required at the bank. The Financial Crisis Inquiry Commission asked him to testify about Citigroup's role in the mortgage crisis, and he did so, appearing as one of the first witnesses before the Commission in April As the crisis began to unfold, Citigroup announced on April 11, , that it would eliminate 17, jobs, or about 5 percent of its workforce, in a broad restructuring designed to cut costs and bolster its long underperforming stock.
With the crisis worsening, Citigroup announced on January 7, that it was considering cutting another 5 percent to 10 percent of its , member-workforce. On November 17, , Citigroup announced plans for about 52, new job cuts, on top of 23, cuts already made during in a huge job cull resulting from four quarters of consecutive losses and reports that it was unlikely to be in profit again before As a result, late in the evening on November 23, , Citigroup and Federal regulators approved a plan to stabilize the company and forestall a further deterioration in the company's value.
On November 24, , the U. The assets remained on Citigroup's balance sheet; the technical term for this arrangement is ring fencing. In return the bank gave the U. The government obtained wide powers over banking operations. Citigroup agreed to try to modify mortgages, using standards set up by the FDIC after the collapse of IndyMac Bank , with the goal of keeping as many homeowners as possible in their houses.
Executive salaries would be capped. According to the article, former CEO Pandit said if Citigroup was allowed to unravel into bankruptcy, " governments around the world would be trying to figure out how to pay their employees". In , Jane Fraser , the CEO of Citi Private Bank, stopped paying its bankers with commission for selling investment products, in a move to bolster Citi Private Bank's reputation as an independent wealth management adviser, as opposed to a product pusher.
On January 16, , Citigroup announced its intention to reorganize itself into two operating units: Citicorp for its retail and institutional client business, and Citi Holdings for its brokerage and asset management. The majority of its assets are U. It was created in the wake of the financial crisis as part of Citi's restructuring plan.
It consists of several business entities including remaining interests in local consumer lending such as OneMain Financial, divestitures such as Smith Barney, and a special asset pool.
While Citi Holdings is a mixed bag, its primary objective is to wind down some non-core businesses and reduce assets, and strategically "breaking even" in On February 27, , Citigroup announced that the U. By December , the U. By December , Citigroup repaid the emergency aid in full and the U. On June 1, , it was announced that Citigroup would be removed from the Dow Jones Industrial Average effective June 8, , due to significant government ownership.
Citigroup was replaced by Travelers Co. Smith Barney, Citi's global private wealth management unit, provided brokerage, investment banking and asset management services to corporations, governments and individuals around the world.
With over offices worldwide, Smith Barney held 9. In , Citigroup achieved its first profitable year since According to Treasury spokeswoman Nayyera Haq, "This IRS tax rule was designed to stop corporate raiders from using loss corporations to evade taxes, and was never intended to address the unprecedented situation where the government owned shares in banks. And it was certainly not written to prevent the government from selling its shares for a profit.
Citi Express modules, hour service units, were introduced in Colombia. Citi opened additional branches in China, expanding its branch presence to 13 cities in China.
Citi Branded Cards introduced several new products in , including: It also has Latin America partnership cards with Colombia-based airline Avianca and with Banamex and AeroMexico; and a merchant loyalty program in Europe.
Citibank is also the first and currently the only international bank to be approved by Chinese regulators to issue credit cards under its own brand without cooperating with Chinese state-owned domestic banks. In , the Global Markets division and Orient Securities formed form Citi Orient Securities , a Shanghai based equity and debt brokerage operating in the Chinese market.
On March 13, , the Federal Reserve reported Citigroup is one of the four financial institutions, out of 19 major banks, that failed its stress tests , designed to measure bank capital during a financial crisis.
On March 26, , the Federal Reserve Board of Governors reported that Citigroup was one of the 5 financial institutions that failed its stress tests. Unlike in the failed stress test in , Citigroup failed on qualitative concerns that were unresolved despite regulatory warnings. The report specifically stated that Citigroup failed "to project revenues 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 testing that adequately reflects its full range business activities and exposures.
In February , the company was subject to a lawsuit as a result of the bankruptcy of a Mexican oil services firm. In April , Citigroup announced that it would eliminate its bad bank , Citi Holdings. Citi Capital Advisors CCA , formerly Citi Alternative Investments, was a hedge fund that offered various investment strategies across multiple asset classes.
Despite this deal, industry surveys pegged Citi as the biggest banking player in the forex market. The operations sold include 27 branches serving approximately , clients. Citi continues to offer corporate and institutional banking and wealth management in Panama and Costa Rica. On April 1, , Citigroup became the exclusive issuer of Costco-branded credit cards. In April , Citi was given regulatory approval for its 'living will,' its plans to shut down operations in the event of another financial crisis.
According to data compiled by Bloomberg , Citigroup is ranked No. Citigroup Center , a diagonal-roof skyscraper located in Midtown Manhattan , New York City, is Citigroup's most famous office building, which despite popular belief is not the company's headquarters building. Citigroup has its headquarters located in downtown Tribeca Greenwich.
It has shops and restaurants serving Metra customers via the Ogilvie Transportation Center. In , Japanese regulators took action against Citibank Japan loaning to a customer involved in stock manipulation. The regulator suspended bank activities in one branch and three offices, and restricted their consumer banking division. In , Japanese regulators again took action against Citibank Japan, because the bank had not set up an effective money laundering monitoring system.
The regulators suspended sales operations within Citibank's retail banking for a month. The case against Citigroup involved recommendations and sales of Class B and Class C shares of mutual funds.
Securities and Exchange Commission said that Citigroup had made misleading statements about the company's exposure to subprime mortgages. The lawsuit was on behalf of investors who purchased certificates in one of two mortgage-backed securities trusts from Citigroup Mortgage Loan Trust Inc in The lawsuit was initially brought by Sherry Hunt, a CitiMortgage employee.
This settlement amount makes the NMS the second largest civil settlement in U. Oklahoma held out and agreed to settle with the banks separately.
Attorney General Eric H. Citigroup had conducted illegal practices in marketing add-on products for credit cards, including credit monitoring, debt-protection products and wallet-protection services. Treasury futures markets, i. On October 22, , Citigroup was sued for violating federal securities laws by misrepresenting Citigroup's Enron -related exposure in its Annual Report and elsewhere, and failing to disclose the true extent of Citigroup's legal liability arising out of its 'structured finance' deals with Enron.
On November 8, , Citigroup was sued for financial misrepresentations and omissions of what amounted to more than two years of income and an entire line of business. In , the General Accounting Office issued a report critical of Citibank's handling of funds received from Raul Salinas de Gortari , brother of Carlos Salinas , the former president of Mexico.
The report, titled "Raul Salinas, Citibank and Alleged Money Laundering," indicated that Citibank facilitated the transfer of millions of dollars through complex financial transactions that hid the funds' paper trail. The report indicated that Citibank took on Salinas as a client without making a thorough inquiry as to how he made his fortune, an omission that a Citibank official called a violation of the bank's "know your customer" policy.
The settlement required that the banks separate investment banking from research, and ban any allocation of IPO shares. In a leaked report for their investor clients from , a team of global strategists at Citigroup wrote an analysis of the global distribution of wealth and consumers.
In it, they state that global imbalances have grown to the extent as to justify talking of a plutonomy , and demand for a renewed understanding of how this impacts consumption. The Managerial Aristocracy, like in the Gilded Age, the Roaring Twenties, and the thriving nineties, needs to commandeer a vast chunk of that rising profit share, either through capital income, or simply paying itself a lot. A love Story while his portrayal of the report has been criticized by the authors.
Government's majority holding of Citigroup's common shares , compensation and bonuses were restricted from February until December In November it became public that Citigroup was heavily involved in the Terra Securities scandal , which involved investments by eight municipalities of Norway in various hedge funds in the United States bond market.
Terra Securities ASA filed for bankruptcy November 28, , the day after they received a letter from the Financial Supervisory Authority of Norway announcing withdrawal of permissions to operate. The letter stated, "The Supervisory Authority contends that Citigroup's presentation, as well as the presentation from Terra Securities ASA, appears insufficient and misleading because central elements like information about potential extra payments and the size of these are omitted.
A three-year investigation found that Citigroup from to used an improper computerized "sweep" feature to move positive balances from card accounts into the bank's general fund, without telling cardholders. When a whistleblower uncovered the scam and brought it to his superiors [in ], they buried the information and continued the illegal practice.
Robert Kuttner wrote in his book A Presidency in Peril that in spring , Geithner and chief economic adviser Larry Summers believed that they could not seize, liquidate and break up Citigroup because they lacked the legal authority or the tools to do so.
In it, they state that global imbalances have grown to the extent as to justify talking of a plutonomy , and demand for a renewed understanding of how this impacts consumption.
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