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 FINANCIAL CRISIS INQUIRY COMMISSION REPORT

lifting of supervisory agreements associated with various control problems at Citi-
group. In April , the Fed and OCC downgraded their overall ratings of the com-
pany and its largest bank subsidiary from  (satisfactory) to  (less than satisfactory),
reflecting weaknesses in risk management that were now apparent to the supervisors.
Both Fed and OCC officials cited the Gramm-Leach-Bliley Act of  as an ob-
stacle that prevented each from obtaining a complete understanding of the risks
assumed by large financial firms such as Citigroup. The act made it more difficult—
though not impossible—for regulators to look beyond the legal entities under their
direct purview into other areas of a large firm. Citigroup, for example, had many reg-
ulators across the world; even the securitization businesses were dispersed across sub-
sidiaries with different supervisors—including those from the Fed, OCC, SEC, OTS,
and state agencies.
In May and June , Citigroup entered into memoranda of understanding with
both the New York Fed and OCC to resolve the risk management weaknesses that the
events of  had laid bare. In the ensuing months, Fed and OCC officials said, they
were satisfied with Citigroup’s compliance with their recommendations. Indeed, in
speaking to the FCIC, Steve Manzari, the senior relationship manager for Citigroup
at the New York Fed from April to September , complimented Citigroup on its
assertiveness in executing its regulators’ requests: aggressively replacing manage-
ment, raising capital from investors in late , and putting in place a number of
much needed “internal fixes.” However, Manzari went on, “Citi was trapped in what
was a pretty vicious . . . systemic event,” and for regulators “it was time to come up
with a new playbook.” 

Wachovia: “The Golden West acquisition was a mistake”
At Wachovia, which was supervised by the OCC as well as the OTS and the Federal
Reserve, a  end-of-year report showed that credit losses in its subsidiary Golden
West’s portfolio of “Pick-a-Pay” adjustable-rate mortgages, or option ARMs, were ex-
pected to rise to about  of the portfolio for ; in , losses in this portfolio
had been less than .. It would soon become clear that the higher estimate for
 was not high enough. The company would hike its estimate of the eventual
losses on the portfolio to  by June and to  by September.
Facing these and other growing concerns, Wachovia raised additional capital.
Then, in April, Wachovia announced a loss of  million for the first three months
of the year. Depositors withdrew about  billion in the following weeks, and
lenders reduced their exposure to the bank, shortening terms, increasing rates, and
reducing loan amounts. By June, according to Angus McBryde, then Wachovia’s

senior vice president for Treasury and Balance Sheet Management, management had
launched a liquidity crisis management plan in anticipation of an even more adverse
market reaction to second-quarter losses that would be announced in July. 
On June , Wachovia’s board ousted CEO Ken Thompson after he had spent 

years at the bank,  of them at its helm. At the end of the month, the bank an-
nounced that it would stop originating Golden West’s Pick-a-Pay products and would