The Bankwatch

Tracking the consumer evolution of financial services

Risk assessment of banks’ continues to be harder than it needs to be

From the “we haven’t really learned anything” department, banks continue to work within the rules they are given and make month end adjustments to their balance sheets with considerable impact to the real risk level, by understating debt in reports.

Wall Street banks accused of window dressing debt | The Times

Leading Wall Street investment banks have been accused of understating debt levels used to finance security trades by an average of 42 per cent at the end of each financial quarter for the past five quarters.

While the practice of “window dressing”, or using cosmetic devices to make published accounts look more attractive, is not necessarily illegal or uncommon, the findings have led some to question how much the banks have learnt from the crisis.

The practice of reducing quarter-end borrowings has occurred periodically for years, according to the data, which go back to 2001, but never as consistently as in 2009, the Journal said.

The New York Fed said that although it collected the data, the activities highlighted in the report were regulated by the Securities and Exchange Commission. After the Lehman revelations, the SEC is now seeking detailed information from nearly two dozen large financial institutions about accounting techniques that could hide a firm’s risk-taking.

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Written by Colin Henderson

April 10, 2010 at 17:33

Posted in Uncategorized

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