JPMorgan Chase, Bank of America and Citibank are keeping trillions of dollars in unknown and potentially risky assets off of their balance sheets, according to new data from the US government.
The new numbers – compiled by the Federal Financial Institutions Examination Council (FFIEC) and first reported on by Wall Street on Parade – show JPMorgan Chase holds $3.227 trillion off-balance sheet, Bank of America holds $1.6 trillion off-balance sheet and Citibank holds $2.6 trillion off-balance sheet.
The Federal Reserve defines off-balance sheet activities as “quite diverse in nature” and says they may include such instruments as firm loan commitments, standby letters of credit, foreign exchange, financial futures, forward contracts, options, interest rate swap contracts and other derivative products.
Off-balance sheet accounting has been a common practice in the banking industry for years and as Wall Street on Parade notes, it played a major role in the 2008 financial crisis.
“More than other banks, Citigroup held assets off of its balance sheet, in part to hold down capital requirements… if those had been included, leverage in 2007 would have been 48:1, or about 53% higher…
Citigroup, of course, blew itself up in 2008 and received the largest bailouts in global banking history. By March of 2009, its stock was trading at 99 cents.”
In July of last year, the Federal Reserve announced a proposal that would impose higher capital requirements on banks to ensure their balance sheets are more resilient in economic downturns.
CEOs at JPMorgan Chase, Wells Fargo, Bank of America, Citigroup, Morgan Stanley, Goldman Sachs, BNY Mellon and State Street argued against the proposed changes in a Senate Banking Oversight Committee hearing in December.
In a prepared statement, JPMorgan Chase CEO Jamie Dimon said the changes would damage the banking industry and the economy at large.
“Despite zero evidence that large U.S. banks are undercapitalized today, the proposed Basel III Endgame rule, if enacted, would unjustifiably and unnecessarily increase capital requirements by 20-25% for the largest banks.
Banks would be limited in their ability to deploy capital in the times we’re most needed, and the rule will have a harmful ripple effect on the economy, markets, businesses of all sizes and American households.”
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