The US Federal Reserve has rejected plans by Citigroup to buy back shares and boost dividends for shareholders.
It cited deficiencies in the bank’s ability to plan for how stressful situations would hurt its business.
It is a setback for Citigroup boss Michael Corbat who was brought in to bolster internal controls after the bank failed stress tests two years ago.
Citigroup’s shares fell more than 5% in after-hours trading in New York.
Citigroup had planned to buy back $6.4bn (£3.9bn) shares by the beginning of 2015, and increase dividends by 5%.
It is the second time in three years that Citigroup’s plans to return cash to shareholders have been rejected. The plan is seen as critical to Citigroup’s profitability.
“We are deeply disappointed by the Fed’s decision,” Mr Corbat said in a statement.
Explaining the decision, Daniel Tarullo, a member of the Fed’s board of governors, said: “With each year we have seen broad improvement in the industry’s ability to assess its capital needs under stress.
“However, both the firms and supervisors have more work to do as we continue to raise expectations for the quality of risk management in the nation’s largest banks.”
Capital plans of four other banks, including the US units of HSBC, RBS and Santander, were also rejected.
Twenty-five other banks, including Bank of America, JP Morgan Chase and Goldman Sachs, were approved.