Two Years After Financial Panic Threatened Our Economy

Our nation’s largest banks are being scrutinized by the SEC for using the same tactics that led to the demise of Lehman Brothers in September 2008, resulting in the largest bankruptcy in U.S. history. By minimizing their actual repo or short term debt levels prior to coming out with their quarterly report for the public, banks have the ability to appear healthier financially than they really are. Then after the next quarter begins the debt levels are raised back up to properly reflect their risk. Bankruptcy examiners in the Lehman case coined the accounting strategy used, “Repo 105”. According to a Wall Street Journal report, this “window dressing” was done by 18 of the largest banks in the nation for the last six quarters. Because of the Lehman collapse two years ago, the SEC has initiated an investigation into this practice which resulted in an agreement to establish rules requiring full disclosure of all debt at the end of the quarter as well as the average and maximum debt during the quarter. SEC Chairman, Mary Shapiro, called the information “critical to the assessing a company’s prospects for the future, and even the likelihood of its survival. This principle was borne out during the recent financial crisis.”

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