Bloomberg Businessweek - USA (2019-12-23)

F I N A N C E

29

● A guide to the legal and not-

so-legal sleight of hand banks

use to mask their true condition

On a Friday afternoon in November, the long story
of the global economic crisis reached a milestone:
More than a decade after the fact, a court convicted
senior executives from major banks for crisis-
era crimes. Outside of Iceland and Ireland, such
convictions have been rare. In Milan’s judicial
complex, the judge sentenced 13 former executives
of Deutsche Bank, Nomura Holdings, and Italy’s
Banca Monte dei Paschi di Siena to prison terms as
long as 7 ½ years. Significantly, these men hadn’t
been convicted of causing any of the market losses
that crippled the banking system in 2008. They’d
been convicted of hiding them.
The cover-up wasn’t just worse than the crime.
It was the crime. Deutsche Bank and Nomura had
structured a complex set of derivatives that Monte
Paschi used to erase about $800 million of red ink
from its books. Today, as investors and regulators

scanthehorizonforthenextthreat,theMilan

convictions are a reminder that the danger might

notbevisiblethroughthefogoffinancialfakery.

Despite a decade of post-crisis reforms,

financialcompaniesstillusetrickstoobscure

theirtruecondition. Often these moves are legal.

Sometimes they’re not. And sometimes they fall

into a gray area that regulators haven’t yet imag-

ined they need to police. “Don’t tell me everything

is better now,” says Anat Admati, a finance and eco-

nomics professor at Stanford’s Graduate School of

Business. “You have to assume you’re only seeing a

fraction of what’s going on in fake finance.”

In fact, tough new rules have proved the

mothers of invention, and fresh examples of

reality-bending financial practices keep popping

up. Here’s a guide to the techniques of financial

obscurantism, old and new.

● WINDOW DRESSING

In October, European Central Bank supervisors

reported a curious thing happening at some of

the biggest European banks. About 35 days into a

hypothetical stress test period, a key measure of

the banks’ ability to meet their obligations would

Edited by

Pat Regnier and

Rebecca Greenfield

How Wall Street

Hides the Ball