2008-06-04blogspot.com

Accounting changes could force US banks to take thousands of billions of dollars back on to their balance sheets in the coming months in a move that is likely to curb further their lending and could push them into new capital raisings, analysts have warned.

Analysts at Citigroup said a planned tightening of the rules regarding off-balance sheet vehicles would force banks to reconsider arrangements and could result in up to $5,000bn of assets coming back on to the books.

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The absurdity is not $5 trillion coming back on bank balance sheets. Rather the absurdity is with accounting rules that let banks hold this much stuff off balance sheets in the first place. It makes a mockery of stated leverage, value at risk, and capitalization ratios. Banks claim to be well capitalized but the ratio is a mere 6% and that 6% does not include the effects of hiding $5 trillion off balance sheets.



Comments:

bdc63 at 06:46 2008-06-05 said:
$5 Trillion here, $5 Trillion there ... pretty soon, before you know it, it really starts to add up ... Permalink
emn243 at 11:41 2008-06-05 said:
I'm surprised it took this long for people to take notice of this....it has been in the works for a while....I-Banks have a ton of securitized products that are kept off balance sheet....Citi alone has $1 Trillion of this stuff (mtgs, credit cards, if they packaged it, it's there)......wonder why Goldman Sachs barely is taking any writedowns.....$62 Billion in off balance sheet QSPE's and Unconsolidated VIE's......Morgan over $30 Billion......Lehman and Merrill DON'T EVEN LIST THEIR UNCONSOLIDATED ENTITIES ON THEIR FINANCIALS (at least I have not been able to find them as of yet, maybe I missed them, it's entirely possible) if these entities have to bring the unconsolidated stuff on their balance sheet in '09 and the housing crisis lasts through 2010, the writedowns will be enormous......one of my professors talked about this in grad school a few weeks ago........very scary when you think about it..... Permalink

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