Banking errors can sometimes lead to minor inconveniences, but in rare cases, they result in catastrophic financial losses. Some of these mistakes cost millions—or even billions—due to human error, technical glitches, or security breaches. One of the most shocking cases of all time involved Citibank in 2020, where a simple mistake led to a loss of nearly $900 million. Here’s how it happened.
The Citibank $900 million blunder
In August 2020, Citibank, acting as an administrative agent for a loan to Revlon, intended to send around $8 million in interest payments to creditors. However, due to an operational error, the bank mistakenly wired $900 million—the full outstanding loan amount—to multiple lenders.
The error occurred due to a complex banking software interface. Instead of transferring only the interest, the system mistakenly executed the principal repayment as well. While Citibank quickly realized the mistake, it was too late—many recipients refused to return the money.
Legal battle and consequences
Citibank sued to recover the funds, but in an unexpected ruling, a U.S. court decided that the lenders could keep approximately $500 million. The court based its decision on a legal doctrine known as the "discharge for value" rule, which allows a recipient to keep mistakenly transferred funds if they were under the impression that the money was legitimately owed. Since the lenders believed they were receiving early loan repayments, they were not legally required to return the money.
Other notable bank transfer mistakes
- Deutsche Bank (2015): mistakenly sent $6 billion to a hedge fund client due to a trader’s input error. Fortunately, the bank recovered the funds quickly.
- Santander (2021): accidentally sent £130 million ($175 million) to thousands of UK accounts due to a payment duplication error.
- Bank of America (2022): some customers received mysterious extra funds, leading to confusion before the bank reversed the errors.
How do banks prevent such errors?
Banks use multiple security layers, such as:
- Dual authorization: requiring two employees to approve large transactions.
- Advanced AI & automation: Detecting anomalies before funds are transferred.
- Real-time reconciliation: ensuring correct payment amounts before transactions are executed.
- Employee training: educating staff to recognize and prevent errors.
Conclusion
The Citibank error of 2020 remains one of the most expensive banking mistakes in history, proving that even leading financial institutions are not immune to costly errors. This case underscores the importance of stringent security measures, better software design, and regulatory oversight to prevent such financial disasters.
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