Banks May Be Using Lehman-Style Trick to Disguise Debt
- Debt may be within limits just four times a year, BIS says
- Repo allows banks to deflate balance sheets at reporting time
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Banks may be disguising their borrowings in a way similar to that used by Lehman Brothers Holdings Inc., with debt ratios falling within limits imposed by regulators just four times a year.
Lenders use repurchase agreements -- known as repos -- to massage down their assets as reporting dates approach, typically as quarters end, the Bank for International Settlements said in its Annual Economic Report. The practice boosts leverage ratios -- the ratio between capital and so-called leverage exposures -- allowing banks to report them as being in line with regulatory requirements, it said.