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Banks Reclassify Quarter Trillion In Securities Ahead Of Rate Hike
One thing that’s great about being a TBTF bank is that generally speaking, no one (including employees) really has any idea what all is on your balance sheet let alone how much all of it may or may not be worth at any given time. Between that ambiguity and fun accounting tricks like taking loan loss reserve releases when it suits you (sometimes while simultaneously reporting increases in non-performing loans) and booking DVA gains (because it certainly makes sense that becoming less creditworthy should somehow generate “profits”), you can pretty much just goal-seek the bottom line in any given reporting period. Given this “flexibility,” one smart thing to do as the Fed prepares to embark on a rate hike cycle is figure out the best way to shield your available-for-sale book from damage. Fortunately, this turns out to be remarkably straightforward. You simply reclassify everything as held-to-maturity. Here’s more from WSJ:
Banks are shuffling big chunks of their securities portfolios around the balance sheet to shield capital levels from rising interest rates.
The moves, also encouraged by recent changes by regulators in bank-capital requirements, mean that billions of dollars in bonds and other debt held by banks have gone from being available for sale at a moment’s notice to being parked in an area of their books where they can’t easily be traded.
In the 18 months ended Dec. 31, U.S. banks moved $293 billion of their securities investments to the “held to maturity” bucket on their balance sheets, according to data from the Federal Deposit Insurance Corp. that covers more than 6,500 banks.
That 84% increase since June 30, 2013, means that about $640 billion, or one in five dollars in banks’ securities portfolios, can’t be sold easily, up from about one in nine dollars in mid-2013.

So that’s a quarter of a trillion dollars in interest rate sensitive securities that banks get to shield from rising rates simply by calling them something different today than they did yesterday. Nice trick, right? What this does is allow banks to simply ignore changes in the market value for those securities when it comes to calculating capital levels.
Now you would certainly think that there would be something that prevents banks from simply shifting these things around when it’s advantageous and ostensibly there is:
Once banks put securities into the held-to-maturity bucket, they generally aren’t permitted under accounting rules to take them out and sell them.
It is “not in the best interests for the bank,” to move securities into the held-to-maturity bucket, said Gerard Cassidy, an analyst with RBC Capital Markets. “They’re just going to restrict themselves” and leave themselves “handcuffed.”
Of course this is just a charade. Does anyone really think that the same accounting regime that allows banks to generate profits with gimmicks like DVA gains is going to keep the very same banks from reclassifying held-to-maturity securities as available-for-sale in a bind? Of course not. This is just a way for banks to delay marking their book to market when the market mark is likely to get unfavorable.
The problem with this approach — besides the fact that it makes a complete mockery of the idea that GAAP is supposed to be somehow be useful — is that the conditions that would cause a TBTF firm to have to suddenly raise cash will be the very same type of conditions that would cause the market value of its available-for-sale book to decline.
So in the end, be wary of attempts to postpone M2M because all of those billions in securities carried at par may one day be subject to the old maxim that things are worth exactly what someone is willing to pay you for them.
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"Full faith and credit"...
tick tock motherfuckers...
Which bank will be bankrupt next?
Credit Default Swaps and rates:
http://cds-info.com/
yes, place your bets...
hint; no one goes bankrupt in a "mark to fantasy" world...
Quarterly interim FS's signed off on using MTD method of accounting.
Marked to Delusional
But something is not right, we need more exploratory funs and pronto.
We are not even allowed to whiff an audit of the Fed.
The financial/ banking market has more rabbit holes than Carl Ballantine.
Accounting used to be a respectable way to value companies.
Now shucksters on the sidewalk hiding pees underneath walnut shells have more respect...
Reclassify= turning bullshit to ice cream, so everybody dig in for your taste of joy....
The bank of taxpayer aholes is next.
@ LawofPhysics,
"Full faith & credit" from The Emergency Banki g Act of 1933 14th Amendment "Citizen" Slaves Securitzed birth certificate Souls.
Plus all property, land, assets, labor & future labor.
Yea, I agree. Tic tock Mother Fuckers.
Constitutional convention M Fuckers, in 3,2,1.
You admiralty moonbats are pretty funny. As if there wasn't enough material to work with without inventing imaginary shit.
Again, "laws" that cannot be enforced are fucking meaningless. There is a minimum level of real productivity that must be maintained in order to maintain the status quo, period.
Once we fall below that level, the status quo will not hold, no matter what the fucking official "laws" or government decrees are...
again, fuck em. Get your tribe in order and prepare/hedge accordingly. It's been this way for thousands of years.
Yep, fortunately my tribe tends to be heavily armed and paranoid......
Hold.....!!!! Don't fire until you see the whites of their eyes KD!
The white is on the range markers on my property and that's good enough for me.....
WTF??? The fudgepacker just told the country everything is hunky dory... surely the thing wouldn't lie to the country..... nah, no way....
I will remind everybody that the markets didn't stabilize, even after stealling trillions in tax payer wealth, until the FASB rules were changed allowing the banks to revert back to mark to fantasy accounting. These moves are all well and good, but as long as the current mark to fantasy rules stay everything will remain the same.
Bingo, go ahead motherfuckers, ask congress for another bailout, go ahead, I triple dog dare you, you banking and financier fuckers...
the guillotine is hungry.
they will ask for one. and they will get it. and people will post their outrage on facebook or tweet it. #ihatethefuckingbanks. its not like our fat asses are going to nyc or dc to do anything about it.
we'll see, plenty of evidence that our "allies" and trade partners are starting to do their own thing...
History is seldom clear on things, however, it is clear that trade is the only thing that keeps people from killing each other in earnest...
as far as "going to D.C." really matters, it doesn't when there is no tax revenue flowing to D.C., these fuckers will come to us, prepare.
tick tock...
No, I don't think there will be another bail out of the banks. But a bail in? Courtesy of the bank patrons.
Only further erroding what faith remains in the system... On a per capita basis, world-wide, just how many "bank patrons" are there really? I go to south America for business a fair bit. Talk about a society the operates on a barter and physical cash basis...
A question that maybe one of y'all can address .....
I happen to think a BAIL IN to be the most likely scenario. So let's say the banks take anything in your accounts over, say, 50k. FDIC steps in and guarantees all accounts up to 250k. The FDIC is insanely undercapitalized and would have to be 'bailed out' from the general revenue of the federal govt. So bank goes under, takes money from depositors, FDIC steps in and covers losses up to 250k in money it receives either from the treasury or the fed to make depositors whole, which would just be a round about way to bail out the banks without calling it another bail out. Is this possible or am I way out in left field?
Allow me to simplify... so long as our trade partners keep accepting those paper promises (federal reserve notes), anything is possible...
if there is any backlash, nothing like a few daily 500-1000 point drops in the dow just to make their point very clear.
Pistol whip the voting blocks 401K's, and they'll get in line, real quick.
Interesting, because I would be very curious as to how many people in the U.S. actually have a 401k of substantial value...
I have lived through a few market crashes and even a DOW 1000 changes nothing what so ever.
Even if you go to DC or NYC or Sydney or Berlin the "protesters" are then ostracized as "leftist" and "radicals" and "angry yutes" or "tea partiers" or "right wing extremists" so...
So you're coming down on the side that they WOULDN'T get another bail-out? You've been here a while. You should know better.
I am coming down on the side of what's sustainable, period. Our "allies" and trade partners are already starting to do their own thing. Trade is the only thing that matters, period.
Nothing is sustainable. I don't know why people keep using that word. And what does trade or sustainability have to do with the banks getting another bail-out the next time they fuck everything up?
Bullshit. Several familes have sustained their wealth for generations. Don't be such a pessimist and allow yourself to succomb to the lowest common denominator. Long term thinking, a dependable tribe and being/acting exceptional are real, at least in my life. The bankers and financiers will slit their own throats because of their own greed. They always do. Fuck em.
OT:
On the topic of sustained wealth, am I the last one to hear that Ted Cruz's wife works/worked for Goldman Sachs?
Yes, apparently you are. It's been discussed numerous times here. One of the many reasons he isn't real popular around here.
Besides that, he comes off as smarmy and insincere
The last time people jumped from their office windows I was the only one yelling hurray.
I doubt in the next crash there will be any more.
And there will be without doubt a next crash.
Unless I get to go to the bankruptcy court to buy bank assets from the courts it will like the last be for naught and no lessons will be learned.
".....Long term thinking, a dependable tribe and being/acting exceptional are real........."
Indeed....
".......bankers and financiers will slit their own throats because of their own greed....."
Because Human Nature Never changes........
Going Forward, The Culling, Not "Bailouts"......
@nodebt, I'm on the fence about another bailout, myself. While I'm sure they will receive some under the table help, I don't think any of those parasites in warshington are going to vote to approve another bailout , that would be enough to see too many of them get booted out of office next time, especially congressmen who have to get re elected every 2 years , since at the end of the day that's all any of them care about. I think the BAIL IN is what's coming. Anyone who have more than 100k or so anywhere will be taking a major haircut.
They will get another one.
...and hyperinflation will be unleashed...
That or empty store shelves
Yes, history is clear just how fast in a "centrally planned" or socialist/communist/fascist system oversupply can turn into shortages.
Capital and resource mis-allocation and mal-investment does have consequences...
Or both.
The Criminal don't need another bailout. The Citizen Slaves are already on the hook via the FDIC.
Accounting,, it was nice to know you....
Fasb rule change DOES need to be reminded because its been over 6 years of mark to fantasy.
People can even remember a couple months ago. Market is fully manipulated, yet some still wont believe the facts.
And we wonder where all the "deep liquidity" in bond markets has gone. That's been the game since the day FASB mark-to-market practice was abandoned, as you rightly point out. And it's nothing really all that new. Somewhere on a bank's balance sheet they are probably still slowly writing down bonds issued to finance the Spanish American war.
Pack 'em, stack 'em and rack 'em. Never to see the light of day again.
The FASB was effectively forced to change their rules by Congress. The FASB went back a couple of years ago to ask if it could change the rules back to Mark To Market only to be told no.
DavidC
FASB has been a joke for some time now.
They should have closed down when Andersen imploded.
Funny how the laws don't apply to some folks...really not funny
Excuse my ignorance.
What is ,'DVA'?
Debt Value Adjustment. When one party has a CVA (Credit Value Adjustment) loss the counterparty records a corresponding DVA (Debt Value Adjustment) gain.
In short, it's complicated. Or perhaps not, if you just realize it's an accounting number that in no way reflects any underlying reality.
If you'd like to take a deeper dive, here's a good starting article:
http://www.msog.jp/tribune/pdf/Quantifi_Whitepaper.pdf
No Debt-Thanks for the tutorial.
The gist of it is that as you become less creditworthy, the bonds you've already issued lose value and would thus be cheaper to buy back. So basically it's phantom profits that are marked on the books as the company's creditworthiness declines.
It goes great with a bottle of Manischewitz wine to wash it all down.
yes, and "presto" what should be bad news or a loss, becomes good news or an asset.
"Pension Liabilities" become "Legacy Assets". We just solved a lot of problems and it wasn't really that difficult. Thanks!
This is happening already...
Besides, if you have enough pension liabilites/legacy assets, you are too big to fail...
Correct, just more "mark to model"(i.e. mark to fantasy) gimmics to try and hide any and all counterparty risk...
Well, the accounting tricks and the two-fisted money printing by the Fed are the only things keeping the TBTF zombie banks somewhat alive. Imagine if they were forced to account properly and it became apparent to everyone that the banks are entirely insolvent and all the depositors money, their IRAs, their pensions, are long gone? Things were ugly in 2008. Imagine how bad they'd be if all the TBTF banks went belly up in unison and all the derivatives triggered and blew up simultaneously? Not a pretty thought. The creative accounting gives us the opportunity to insulate ourselves from this unavoidable apocalypse.
Soon enough the headlines will be dominated by starving mobs ripping bankers apart in the streets...
Imagine how bad
Soon enough
Thank you Dr. S
" the conditions that would cause a TBTF firm to have to suddenly raise cash will be the very same type of conditions that would cause the market value of its available-for-sale book to decline."
oh, please ... hardly
just like last time ... TBTFs (and others) will be allowed to use federal reserve discount window ... give FR your trash (with minor haircut) and get FRNs in exchange ... no way Wall Street / FR/ Treasury Dept interested in finding true price discovery
What rate hike?
"the old maxim that things are worth exactly what someone is willing to pay you for them"
Well the fed will always be ready to pay top dollar (using taxpayer $s of course) to unload crap from banks
Here I am in front of Splash Mountain in Disney World reading Zero Hdge on my iPhone.
May as well enjoy this economic illusion while it lasts.
It's going to be a long way down!!
Well there should be plenty of water for Splash Mountain. Can't say that for Disney Land as all of the water reserves were released out to sea in CA.
Anyway, if things start to run dry in Orlando, the Army Corps. of Disaster can just let the dikes of Lake Okeechobee fail to the west drowning everyone in a sea of rancid water laced with fertilizers, pesticides, shit, puss etc.
The inmates (those that should be anyway) have full command of the asylum.
LOL, that's sick. Put the phone down, enjoy precious time with family/friends...
The Criminal Federal Reserve Banking system is a consortium of 9 Criminal Banks. All of which need to be dissolved, burned to the ground & assets seized.
$1. Rothschild Banks of London and Berlin
$2. Lazard Brothers Banks of Paris
$3. Israel Moses Seif Banks of Italy
$4. Warburg Bank of Hamburg and Amsterdam
$5. Lehman Brothers of NY
$6. Kuhn, Loeb Bank of NY (Now Shearson American Express)
$7. Goldman, Sachs of NY
$8. National Bank of Commerce NY/Morgan Guaranty Trust (J. P. Morgan Bank - Equitable Life - Levi P. Morton are principal shareholders)
$9. Hanover Trust of NY (William and David Rockefeller & Chase National Bank NY are principal shareholders).
I bet if you WIKI all those, you'll see 'LUCIFERIAN' posted all over the profiles ~ LOL
hehe, problem FIXED!!!!
If negative nominal rates are pending, not rate hikes, then this is the move you would expect them to make.
Never knew accounting could be so exciting! FASB "Fuck Another Stupid Bank", right?
The biggest held-to-maturity portfolio is of course the Federal Reserve Bank itself. Of course they'll let the TBTF banks do the same.
slightly modified quote:
"(Anything) carried at par may one day be subject to the old maxim that things are worth exactly what someone is willing to pay you for them. "
Keynes also says:
http://en.wikipedia.org/wiki/Liquidity_preference
shortened by me to "liquidity is a Good Thing", and therefore desirable.
So therefore, and especially in a crisis,
Something Illiquid < Something Liquid
And as Rickards notes - the level of inflation is BELOW real interest rates - so the feedback is to clutch up and hold on to your liquidity instead of borrow to the hilt and watch inflation eat away your debt (like most of history).
Therefore things will really stop in this game - when the Greater Fools realize they have been fooled, and pull their bids. That means that people who are happy to have been able to make their monthly payments on their $60K auto, $500K house, and $100K credit card balance somehow realize that the GuvMint isn't their to save their assess, but instead to hand it back to them with some pounds (Sterling in the UK) missing.
Does it even matter really?
They can just make up new rules..or fuck it..why bother when they dont have to follow the rules anyway.
Makes me think this is just a show for the peasants.
I mean..'from the WSJ'?
Cmon guys.
Every once in a while I look at my gold and silver eagles and say....."some day baby, some day!
Until then I carefully buy and sell equities as I am convinced beyond a shadow of a doubt that US Gov will never let the bottom fall out.
I hope I'm right!
held to maturity = couldn't sell to anyone, not even to calpers
ah yes but this money will counted as bank reserves and at mark to myth values, just as the fed calls its liabilities deferred assets. the Bank of Orwell, nearly 100 years old and solid
Every Congressman should be given a business IQ test and the result pinned on their suit so everyone knows 99% of them are raging idiots allowing this shit to continue.
All congressmen are millionaires. They’re doing SOMETHING right.
Or perhaps they are simply privy to important information before everyone else...
they are exempt from insider trading laws after all...
'Rate hike'....yea 1 basis point maximum if anything at all.
If you're tired of our nation being of, by and for TBTJ financial asset ponzi operators, change the game. Liquidate any TBTJ mark to unicorn equity you might own to buy gold (and encourage all others who share the frustration to do so as well). There are trillions in mark to unicorn equity and the physical gold market will go into default, exposing the TBTJ financial asset ponzi for what it really is and permanently ending the tyranny of the uber minority.
The physical gold market cannot go into default. Anyone who claims otherwise doesn't understand contract law.
There is no "impending rate hike"
seriously this is just self serve QE. have your assets been ruined by rising rates? just park them off balance sheet and we'll give you new ones.
My wife and I decided that the family would be better off if the kids were orphans, all sorts of state benefits, new foster parents, goodies courtesy of the entitlement state we can no longer provide because we are jobless and under a pile of consumer debt. So we signed a pact and left it on the kitchen table, and we drove out to the lookout point. Of course we didnt really kill ourselves. We just spilled some fake blood on the seats, and pushed the car over the edge of the cliff. there was quite an explosion. We disappeared for a few months. our credit card bills were maxed out, but the kids will be okay, and we bought gold on account. There is nobody to collect from us. In a few years, or even less, we will ease back into the game, with new identities. We hope to become foster parents, We might even get our own kids back. if you had suggested I could solve our family problems by orphaning my own children I would have laughed, but then no real assets were harmed in the making of this production, hehe. [apologies to Mogambo Guru]
Disability Planner: How You Qualify For Social Security Disability Benefits
http://www.ssa.gov/planners/disability/dqualify.html#sb=3
America = work until you drop.
Work is for suckers. Think disability, EBT/SNAP, housing voucher, Obamacare, Obamaphone, and coming-to-a-street-near-you, free internet.
My dad used to tell us about this thing they had called Generally Accepted Accounting Principles.....
Oh, do tell! (sitting indian style, chin on hands)
“old maxim that things are worth exactly what someone is willing to pay you for them.”
Technically, ‘worth’ is based on the viability of the reinsurer of the insurer you used to insure the item.
What catalyst will irrevocably reveal the banking conspiracy that presently colludes and conspires to set global asset prices?
OT but interesting Russian move:
http://anonhq.com/checkmate-central-bank-russia/
What are they going to sell when there is a bank run?
they'll pay you in kind for your deposites with these bonds held to maturity, have a nice day
Rates will increase 0.0000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000015%
It'll be a bloodbath!
I found some humour yesterday in a Credit Card Notice that i received. They wanted me to use their Exclusive Elite Card that Charges only 23% Annual Interest and the ONLY US Industry EXEMPTED from USURY LAWS are the TBTF WS Banking Conglomerates who, thru their wholly-owned FedRes have Manipulated Rates to ZIRP thereby screwing their savers and competitors in EVERY Industry (whose TRUE Cost of Capital is FAR HIGHER) on one end of their Biz Model while on the other end of TBTF WS Biz Model, they charge 23% and higher for Credit Cards, loans, etal. Now that my friends is TRUE USURY and yet the one industry most susceptible to engage in same is exempted from those laws. Our US SC says so.
Our States have argued in the US Constitution they have Superior Power over Fed Govt and so South Dakota protects US TBTF WS Banks from USURY LAWS IN OTHER STATES WHEN SUED THERE and the USSC has acknowledged that States have more rights than Fed Govts for this.
I just simply must ask the USSC in their ruling on this matter: “what about the Citizens of the US? Under our Constitution, they have the MOST rights and yet you usurped them completely in this ruling and left them as the ONLY party NOT represented in the hearing of this matter anyway?”. It’s now wonder this country has gone to shit.
While our CONgress Critters and Court JUSTUS' make bank on the frauds upon the people.
I really don't see the problem. What they're doing is completely logical. You do not lose money on a bond if you hold it to maturity. It's a fact.
...er, well, unless the interest rate is negative of course...
Maturity
Isn't that what is missing from all of this?
What rake hike?