Daily Archives: December 6, 2012

John Gapper

The Deutsche Bank case, in which three whistleblowers have accused the bank of hiding up to $12bn in derivatives losses during the financial crisis, is complex, confusing and opaque. But the underlying principle is simple and important.

Banks used to have a lot of leeway in how to treat bad loans at the bottom of the cycle. That allowed groups to avoid taking losses immediately, and instead to wait for the assets to rise in value again.

But the rules for recognising bad loans have tightened over the past three decades, while a lot of credit instruments are now carried on a mark-to-market basis instead of on the loan book. Their old freedom of manoeuvre has largely gone. Read more