Monday, July 26, 2010

Transparency: The Missing US$400 Billion in Derivatives



As we in the "developed" (make that "highly developed") West like to do, it's time to preach the virtues of transparency and care in preparing data to those less enlightened and skilled out there.

In that vein, here's a quote from the BIS Publication "Provisional International Banking Statistics First Quarter 2010"  Footnote #5  Page3:
In previous reports, some US reporting banks have failed to fully account for the risk transfers associated with protection bought using credit derivatives. This has been corrected for Q1 2010 only. Therefore, the current data for Q4-2009 and Q1-2010 suggest a much larger increase in US banks' cross-border ultimate risk claims and inward risk transfers than will be shown when the Q4-2009 data have also been revised. The amount of this additional reporting is estimated to be close to $400 billion in the Q1 data.
Apparently, the BIS noticed this when reconciling reports on a country by country basis - there were US$400 billion more of transactions reported with the USA than its own institutions reported. 

The culprits have been identified as the non banks that transformed themselves into bank holding companies in the wake of the global financial crisis (all lower case, especially the first word), e.g., Goldman, Morgan Stanley, etc.

Presumably the result of a failure to understand how to fill up the forms.

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