As the Federal Reserve’s interest-rate hikes sent bond prices plunging last year, some of the country’s largest banks used a simple accounting maneuver to help keep billions of dollars of losses from piling up on their books.
They declared that they intended to hold on to large portions of their money-losing bonds until they matured rather than selling them, and they then changed the bonds’ accounting labels accordingly. From then on, the bonds would be frozen in time, no matter how far their values fell in the market.
The Wall Street Journal identified six large U.S. banks including Charles Schwab Corp. SCHW 2.53%increase; green up pointing triangle and PNC Financial Services Group Inc. PNC 1.62%increase; green up pointing triangle that together switched the classifications on more than $500 billion of their bond investments last year. For some banks, excluding the unrealized losses from their balance sheets allowed them to report robust levels of capital when in reality their assets were worth much less.
Source : Banks Do Balance-Sheet Shuffle in Response to Rising Interest Rates