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 FINANCIAL CRISIS INQUIRY COMMISSION REPORT

large banks and thrifts already had. And on these assets, the markdowns continued
in . Regulators began to focus on solvency, urging the banks to raise new capital.
In January , Citigroup secured a total of  billion in capital from Kuwait, Sin-
gapore, Saudi Prince Alwaleed bin Talal, and others. In April, Washington Mutual
raised  billion from an investor group led by the buyout firm TPG Capital. Wa-
chovia raised  billion in capital at the turn of the year and then an additional  bil-
lion in April . Despite the capital raises, though, the downgrades by banking
regulators continued.
“The markets were really, really dicey during a significant part of this period,
starting with August ,” Roger Cole, then-director of the Division of Banking Su-

pervision and Regulation at the Federal Reserve Board, told the FCIC. The same
was true for the thrifts. Michael Solomon, a managing director in risk management
manager in the Office of Thrift Supervision (OTS), told the FCIC, “It was hard for
businesses, particularly small, midsized thrifts—to keep up with [how quickly the
ratings downgrades occurred during the crisis] and change their business models
and not get stuck without the chair when the music stopped . . . They got caught. The
rating downgrades started and by the time the thrift was able to do something about
it, it was too late . . . Business models . . . can’t keep up with what we saw in .” 
As the commercial banks’ health worsened in , examiners downgraded even
large institutions that had maintained favorable ratings and required several to fix
their risk management processes. These ratings downgrades and enforcement ac-
tions came late in the day—often just as firms were on the verge of failure. In cases
that the FCIC investigated, regulators either did not identify the problems early
enough or did not act forcefully enough to compel the necessary changes.

Citigroup: “Time to come up with a new playbook”

For Citigroup, supervisors at the New York Fed, who examined the bank holding
company, and at the Office of the Comptroller of the Currency, who oversaw the na-
tional bank subsidiary, finally downgraded the company and its main bank to “less
than satisfactory” in April —five months after the firm’s announcement in No-
vember  of billions of dollars in write-downs related to its mortgage-related
holdings. The supervisors put the company under new enforcement actions in May
and June. Only a year earlier, both the Fed and the OCC had upgraded the company,
after lifting all remaining restrictions and enforcement actions related to complex
transactions that it had structured for Enron and to the actions of its subprime sub-
sidiary CitiFinancial, discussed in an earlier chapter. “The risk management assess-
ment for  is reflective of a control environment where the risks facing Citigroup
continue to be managed in a satisfactory manner,” the New York Fed’s rating upgrade,
delivered in its annual inspection report on April , , had noted. “During ,
all formal restrictions and enforcement actions between the Federal Reserve and
Citigroup were lifted. Board and senior management remain actively engaged in im-
proving relevant processes.” 
But the market disruption had jolted Citigroup’s supervisors. In November ,