Bank of America ( BAC) is operating under a memorandum of understanding that requires it to overhaul its board and address perceived problems with risk and liquidity management, the Wall Street Journal reports, citing people familiar with the situation.

The MOU gives banks a chance to work out their problems without the glare of outside attention, the Journal notes. Firms that don't address deficiencies can be given harsher penalties that include a publicly announced cease-and-desist order.

The order was imposed in early May, shortly after shareholders of Bank of America removed CEO Ken Lewis as chairman.

The Journal, citing the people familiar with the situation, reports the bank faces a series of deadlines, some at the end of July and others in August.

Bank of America might get more time to complete some of the steps it is taking, such as revamping its board with a majority of new directors, the Journal reports.

The MOU is the most serious procedural action taken against Bank of America by federal regulators since the financial crisis erupted, the Journal notes.

Meanwhile, Citigroup ( C) has been operating since last year under a similar order with the Office of the Comptroller of the Currency, the newspaper reports, citing people familiar with the matter. The company recently has been negotiating with the Federal Deposit Insurance Corp. about entering into a similar agreement with that agency.

The pact with the FDIC, which relates to Citigroup's plans to shed assets and improve its governance, reinforces a strategy already under way at the bank, the people said.

Spokesmen for Citigroup and the FDIC declined to comment for the Journal.

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