Pam and Russ Martens: Fed lets big banks rig their stress tests

Section:

By Pam and Russ Martens
Wall Street on Parade
Tuesday, August 11, 2020

On January 31 this year, researchers for the Federal Reserve released a study that showed that the largest banks operating in the United States have been gaming their stress test results by intentionally dropping their exposure to over-the-counter derivatives in the fourth quarter. The fourth quarter data is the information used by the Federal Reserve to determine surcharges on capital for Global Systemically Important Banks, or G-SIBs.

The report, "How Do U.S. Global Systemically Important Banks Lower Their Capital Surcharges?," was written by Jared Berry, Akber Khan, and Marcelo Rezende.

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We decided to evaluate this claim for ourselves, using the quarterly derivative reports provided by the Office of the Comptroller of the Currency, the regulator of national banks.

The data was appalling.

The largest Wall Street banks not only dropped their level of derivatives by trillions of dollars in the fourth quarter, but they restored those derivatives by the end of the following first quarter.

In the case of JPMorgan Chase, the bank dropped its total derivatives from $55 trillion notional (face amount) in the third quarter to $46.9 trillion in the fourth quarter of 2019, a decline of $8 trillion in one quarter or 15 percent. But by the end of the first quarter of 2020, JPMorgan had pushed those derivatives back up to $59.6 trillion. ...

... For the remainder of the report:

https://wallstreetonparade.com/2020/08/bombshell-report-fed-is-aware-tha...

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