Dressing the banks' window
There's no great secret that public companies, especially banks, use cosmetic devices to make their published accounts look as attractive as possible.
It's called window dressing - and in the case of banks its aim is normally to persuade investors and creditors that they are not taking excessive risks.
As you'll recall, Lehman - the US investment bank whose demise triggered arguably the worst global banking crisis the world has seen - used a highly questionable accounting device called "Repo 105" to reduce its published assets and debts by a significant $50bn (see my note, "Lehman: how it disguised its frailty").
Now you'd think that in the wake of that banking crisis, banks would abandon their window-dressing habits and share with investors and creditors the true risks they run.
That, it seems, would have been a naive assumption to make.
Data supplied to the Federal Reserve Bank of New York shows that 18 big international banks systematically understated in their published quarterly accounts what they had borrowed to finance securities trading from the repo market (which is where securities can be swapped for short-term loans).
So says this morning's Wall Street Journal.
According to the Journal, the 18 banks that understated their debt levels included all the important ones, such as Goldman Sachs, Morgan Stanley, JP Morgan Chase, Bank of America and Citigroup - although it doesn't say which were the worst culprits.
The scale of this prettying up of their balance sheets is striking.
The Fed data shows that during the past 15 months, and at the end of each of the five quarterly reporting periods, the published debt used to fund securities speculation of the 18 banks was 42% lower on average than the actual peak levels of their debt in the preceding few weeks.
Or to put it another way, these banks were telling their investors and creditors that they were taking on much less debt (42% less) and much less risk than was actually the case.
That will disturb anyone who believes that the best way to keep banks on the prudent straight-and-narrow is for those who lend and invest in them to have the facts about what they're doing - so that they can instruct banks' management to do the right thing.
The important point is that market discipline on banks is wholly ineffective if the market doesn't have the relevant information.
Many would argue that it shows that the banks have learned almost nothing from the financial cataclysm of 2008.
All the banks would argue that wealth creation is maximised when official regulation is light and markets are liberated to do what markets do best.
But if they are not giving the market the facts that the market needs to sort the banking wheat from the chaff, then there is no alternative to very intrusive and costly regulation by the likes of the New York Fed and Britain's Financial Services Authority.
Arguably, the New York Fed's data shows that when the banks were herded into the last chance saloon at the end of 2008, they were not converted to a life of transparent temperance, but chose instead to drink the bar dry and shoot the place up.