18 Major Banks Understate Debt Levels Before Making Public Reports

Major banks have masked their risk levels in the past five quarters by temporarily lowering their debt just before reporting it to the public, according to data from the Federal Reserve Bank of New York.

Photo: 18 Major Banks Understate Debt Levels Before Making Public Reports

A group of 18 banks—which includes Goldman Sachs Group Inc., Morgan Stanley, J.P. Morgan Chase & Co., Bank of America Corp. and Citigroup Inc.—understated the debt levels used to fund securities trades by lowering them an average of 42% at the end of each of the past five quarterly periods, the data show. The banks, which publicly release debt data each quarter, then boosted the debt levels in the middle of successive quarters, Wall Street Journal  informs.

Hong Kong-based spokespeople for Goldman Sachs, Morgan Stanley , JPMorgan and Citigroup declined to comment on the Fed data or the report. Banks not identified in the report confirmed that they temporarily cut borrowings at the end of a quarter and some noted their regulatory filings tell investors debt levels can rise and fall during the quarter, the Journal said.

Regulation of the financing activity data documented by the New York Fed falls under the auspice of the Securities and Exchange Commission, the U.S. brokerage watchdog, the report said, citing an unidentified official at the Federal Reserve Board. The New York Fed declined to comment, it said, Bloomberg reports.