- US banks used accounting maneuver to avoid reporting losses on money-losing bonds.
- Declared intention to hold on to bonds until maturity instead of selling them.
- Reclassified bonds as "held-to-maturity" to freeze their value on balance sheets.
- Reclassifications allowed banks to report higher levels of capital than reality.
- Six large US banks reclassified over $500 billion of their bond investments last year.
As Interest Rates Rose, Banks Did a Balance-Sheet Switcheroo
US banks kept billions of dollars of losses off their books by reclassifying their money-losing bonds as "held-to-maturity" to freeze their value on balance sheets, avoiding reporting losses as interest rates rose.