How banks game stress tests: the ‘shocking’ truth
Leaked memo exposes effort to swap out risky assets despite Fed’s push to end “window dressing”
It seemed innocuous enough. A large US bank approaches a European dealer proposing to swap equities for bonds on a triparty basis, in an arrangement it describes as an “upgrade trade”.
Later discussions, detailed in a memo dated May 2018, show the underlying purpose of the trade: to help the US bank with “liquidity needs during stress test periods”. In other words, the bank wanted to massage its
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