The Securities and Exchange Commission is looking at efforts by banks to comply with capital rules. The regulator is searching for improper activities involving the way these financial institutions value complicated assets, as well as transactions used to transfer risks to other entities.
Following the financial crisis, when governments were compelled to rescue banks, regulators have increased how much capital lenders must hold in relation to assets. It has been the job of publicly traded banks to conform to new regulations. However, these new pressures may be compelling some to engage in certain behaviors, such as inaccurate valuations of the holdings of traders to improve profits.
Since the 2008 economic crisis, banks have upped capital requirements by keeping earnings and putting out shares. They’ve also reduced assets according to the rules that weight assets by risks. According to Bloomberg data, the five biggest Wall Street banks have gotten rid of over $200 billion—nearly 25% of risk-weighted assets linked to trading books in the eighteen months through September 2014. Banks have also modified models, lowered trading positions, and incorporated new rules.
In 2014, Bank of America Corp. (BAC) consented top pay $7.65 million to resolve SEC claims accusing it of overstating its capital by billions of dollars when it did not report losses related to its buying of Merrill Lynch & Co. It was the bank that discovered the overstatements connected to the structured notes. Bank of the America made its own disclosure and cooperated with the agency’s investigation.
The SSEK Partners Group is an institutional investor fraud law firm.
SEC Scrutinizing Bank Efforts to Comply With Capital Rules, Bloomberg, February 18, 2015
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