MercoPress. South Atlantic News Agency

Major US banks lowered debt levels to mask risks, claims Wall Street Journal

Apparently 18 first line banks were involved

Major US banks temporarily lowered their debt levels just before reporting in the past five quarters, making it appear their balance sheets were less risky, the Wall Street Journal said, citing data from the Federal Reserve Bank of New York.

The paper said on Friday 18 banks, including Goldman Sachs Group, Morgan Stanley, J.P. Morgan Chase, Bank of America and Citigroup, understated the debt levels used to fund securities trades by lowering them an average of 42% at the end of each period.

The banks had increased their debt in the middle of successive quarters, it said.

Citi, Bank of America, Goldman Sachs, JPMorgan Chase and Morgan Stanley were not immediately available for comment when contacted by Reuters outside regular US business hours.

Excessive leverage by the banks was one of the causes that led to the global financial crisis in 2008.

Due to the credit crisis, banks have become more sensitive about showing high levels of debt and risk, worried their stocks and credit ratings could be punished, the Journal said.