This article on the balance sheet maneuvers of 18 banks obscures the difference between risk taking and accounting for it.
For starters, the findings don't show that banks are moving a lot of debt off their balance sheets a few days before quarter's end, and moving it back on afterward, the way Lehman Brothers did through short-term financing arrangements involving repurchase agreements treated as "sales."
Instead, other banks' moves reflect temporary changes in the size of those balance sheets during the quarter.
Remember that SFAS 140 requires a law firm to attest to the fact that repurchase agreements are sales, and not just financings, for the debt to be shifted away from a balance sheet for however long.
In Lehman's case, no US law firm would do that, so Lehman found a UK firm to provide such an attestation.
In the other cases, however, the banks used repos and other techniques to increase their assets and liabilities during a quarter and then wound them down before its end. That reduced the size of their balance sheet in time for quarterly reports to shareholders.
There's a big difference between the two types of moves involving debt, notes Charles Mulford, an accounting professor at the Georgia Institute of Technology and an advisor to CFOZone.com. "They aren't hiding it," Mulford said, referring to those banks temporarily increasing the size of their balance sheets. "This isn't an accounting issue."
Instead, Mulford likened the non-Lehman-like techniques to the position of a day trader who has no risk at the start of the day, takes on all kinds during the day, and then unwinds it all by day's end. The position is "all cash" at the start and end of the trading day, he noted. But that gives no indication of the risks the trader took during the day.
Of course, it's not as if regulators don't know what's going on, since they track changes in banks' debt levels during the quarter. That, in fact, is precisely what is represented by the average 42 percent change that the SEC found for the past five quarters at the 18 banks in question.
The problem is that investors, depositors and taxpayers who have bailed out many of these banks won't understand what's going on between reporting periods unless they can compare the average asset level that banks report for the quarter with the total at its end.
And, says Mulford, they can only do that in the case of commercial banks, because they alone report average asset levels to the public, presumably because they must already do that in regulatory reports that are also made public. Investment banks don't face that requirement.
Goldman, for its part, claims the amounts involved in its case are immaterial, so it needn't report them to the public. But there's no hard and fast rule as to how large an amount must be to be considered material. The SEC says any amount can be material if its enough to move a stock's price significantly.