Citigroup’s $400 Million Fine: The Buck Stops Nowhere

Citigroup admitted to risk-management shortcomings and some compliance lapses. Federal regulators not only fined Citigroup $400 million but claimed authority over key staffing.

Now the buck stops nowhere. This is bad for Citigroup. And for the rest of us.

Bad Citigroup! Bad!

Citigroup Board of Directors just signed off on consent orders. They admit “significant ongoing deficiencies” in its risk-management and data-protection systems and agree to “remediation projects.”

Citigroup’ mea culpa ran as follows:

We are disappointed that we have fallen short of our regulators’ expectations, and we are fully committed to thoroughly addressing the issues identified in the Consent Orders,” the bank said. “Citi has significant remediation projects under way to strengthen our controls, infrastructure and governance.”

Some bureaucrat somewhere has a $400 million scalp on the wall. But, Citigroup’s CEO will retire (comfortably no doubt) in February 2021. He leaves the mess for his successor. The Board (and its stock options) remain intact.

Apparently, the buck stops nowhere. The consent orders promise to keep things that way. Once again, shareholders pick up the tab.

Does the Government ask the impossible?

Citigroup grew from a mass of acquisitions. This left the bank with a jumble of legacy IT systems that can’t talk to each other. Straightening these systems out is a monumental, multi-year, multi-billion-dollar task. It might not even be humanly possible.

The U.S. Government says that what the bank has done to date is not good enough. Too little, too late.

Maybe the Government is right. But, does anybody in his or her right mind think that the U.S. Government (or Congress) comes anywhere close to living up to the standards it sets for everyday Americans and American businesses?

A “Solution” That Diffuses Accountability Makes the Problem Worse

As part of the consent orders, the Government requires Citigroup to set up a Board Committee. The Government has heightened approval powers over new acquisitions, as well as the power to remove managers and directors.

Who now runs Citigroup? Who has responsibility for remediation projects once the Government-mandated committee is formed, or should the Government approve an acquisition or order the removal of staff?

Across a range of activities, the U.S. Government increasingly stipulates how owners, directors, and managers should run their businesses. Nothing qualifies the Government to run businesses. Bureaucracies generally stifle the nimbleness and creativity successful business requires. State bureaucracies are the worst.

Once the Government establishes its diktats, accountability diffuses. The buck stops nowhere, and no one is really responsible.

Maybe this suits the Government. Maybe it suits directors and senior managers. But, is it good for the shareholders, or the rest of us?

Don’t perform surgery with a cleaver

The Government and policy “experts” should recognize that regulatory tools are crude. If Citigroup broke the law, punish it according to the law. If the bank doesn’t handle risk as required, make the bank increase reserves until bank leadership sorts things out. Finally as part of a settlement, require the resignation of senior leaders and directors (with clawback of equity and other goodies).

People rightfully decry business scandals and what appears to be lack of individual accountability at the Board and C-suite levels. But the trend of Government telling people how to run businesses in ways that muddle accountability makes things worse, not better.

Who pays? You and I do.

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