Opinion: Make Banks Disclose their Trades
Posted: 6 Mar 2014 Last revised: 12 Jun 2014
Date Written: March 6, 2014
Abstract
On April 28 2014, Bank of America announced that it had for years misreported its capital to regulators. The 2014 Bank of America debacle and the 2012 JP Morgan/London Whale scandal are seemingly fundamentally different, yet they are both symptoms of a basic flaw in bank accounting. Banks disclose surprisingly little about their trading activities. Two proposed improvements are to (1) require banks to disclose all realized gains and losses on trading securities even when the bank has previously recognized unrealized gains and losses on those securities. (2) Require detailed, disaggregated disclosures of gains and losses on individual trades that exceed a certain threshold.
Keywords: Regulatory Capital, London Whale, trading securities, fair-value accounting, mark to market
JEL Classification: M41
Suggested Citation: Suggested Citation