Bank of America has admitted to engaging in six end of quarter transactions that removed as much as $10.7 billion from the company’s balance sheet.This was achieved using repo transactions, not completely different from those Lehman Brothers used to similar effect.
The deals were referred to as “dollar rolls” where Bank of America would sell on its mortgage backed securities to a buyer, and then repurchase them after a short time period.
Questions arise over the fact that the securities Bank of America brought back on balance sheet thereafter were “substantially the same,” according to the Wall Street Journal, which violated rules of such transactions.
Correct accounting would have seen Bank of America’s tier 1 capital ratio decline by 0.01% as a result of the largest error in September 2008, according to CNBC.
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