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Fed fines Bank of New York Mellon for misstating capital for more than 3 years

Will pay $3 million for “unsafe and unsound practices”

Bank of New York Mellon will pay a fine of $3 million for “unsafe and unsound practices” that led to the bank misstating its capital for more than three years, the Federal Reserve Board announced Tuesday.

According to the Fed, BNY Mellon consolidated a portfolio of collateralized loan obligations onto its balance sheet in 2010.

The Fed stated that at the time, BNY Mellon “incorrectly assigned the assets a zero-risk weighting, which was improper under the rules in place at the time.”

The result of BNY Mellon’s “improper treatment” of its portfolio led to the bank understating its reported risk-weighted assets and overstating its risk-based capital ratios for almost 14 quarters.

Specifically, the Fed stated that in January 2010, BNY Mellon consolidated a group of variable interest entities managed by its indirect subsidiaries, Alcentra Limited and Alcentra NY, onto its balance sheet.

Then, from approximately 2010 through the second quarter of 2014, BNY Mellon accounted for the Alcentra assets in its “trading book,” where it gave the assets a zero-risk weighting under a value-at-risk model.

The “improper regulatory accounting treatment” of the Alcentra VIEs led to nearly 14 quarters of BNY Mellon overstating its capital.

The Fed noted that when the errors were identified, BNY Mellon took action to correct its risk-weighting and risk-based capital ratios, and said that the bank is now in compliance.

When contacted by HousingWire, a spokesperson for BNY Mellon said that the bank is not commenting on the fine.

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