Major banks seem to “window-dress” their accounts

Borrowing May10.pngIts bad enough that many of the world’s major banks collectively lost $4 trn, whilst continuing to pay themselves $bns in bonuses. Equally sad was the fact that the heads of these banks seemed unable to understand the simple principle of fiduciary duty, when asked by the US Congress about their responsibilities to clients.

But now, a major investigation by the Wall Street Journal suggests that some major banks may be deliberately making it difficult for regulators and investors to properly monitor their real leverage. As the chart above shows, it seems that Bank of America, Deutsche Bank and Citigoup have consistently reported lower net borrowing (green line) over the past 10 quarters, than their average net borrowing (blue).

The Journal reports that “Over the past 10 quarters they have lowered their net borrowings in the “repurchase,” or repo, market by an average of 41% at the ends of the quarters“. And it adds that “The practice, known as end-of-quarter “window dressing” on Wall Street, suggests that the banks are carrying more risk most of the time than their investors or customers can easily see.”

About Paul Hodges

Paul Hodges is Chairman of International eChem, trusted commercial advisers to the global chemical industry. He also serves as a Global Expert for the World Economic Forum. The aim of this blog is to share ideas about the influences that may shape the chemical industry and the global economy over the next 12 – 18 months. It looks behind today’s headlines, to understand what may happen next in critical areas such as oil prices, China and Emerging Markets, currencies, autos, housing, economic growth and the environment. Please do join me and share your thoughts. Between us, we will hopefully develop useful insights into the key factors that will drive the industry's future performance.


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