- 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
Lenders pledged to hold on to money-losing bonds, allowing them to avoid reporting losses
Jonathan Weil
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