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Is window dressing by banks systemically important?

Author

Listed:
  • Luis Garcia
  • Ulf Lewrick
  • Taja Sečnik

Abstract

We study banks' year-end window dressing in the European Union to assess how it affects the identification of global systemically important banks (G-SIBs) and the associated capital surcharges. We find that G-SIBs compress their balance sheet at year-end to an extent that they can reduce their surcharges or avoid G-SIB designation altogether. G-SIBs use several levers to adjust their balance sheets. Most notably, they compress intra-financial system assets and liabilities as well as their derivative books at year-end. Moreover, G-SIBs that are more tightly constrained by capital requirements window dress more than their peers. Our findings underscore the importance of supervisory judgement in the assessment of G-SIBs and call for greater use of average as opposed to point-in-time data to measure banks' systemic importance.

Suggested Citation

  • Luis Garcia & Ulf Lewrick & Taja Sečnik, 2021. "Is window dressing by banks systemically important?," BIS Working Papers 960, Bank for International Settlements.
    • Handle: RePEc:bis:biswps:960
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    References listed on IDEAS

    as
    1. Vladimir Kotomin & Drew Winters, 2006. "Quarter-End Effects in Banks: Preferred Habitat or Window Dressing?," Journal of Financial Services Research, Springer;Western Finance Association, vol. 29(1), pages 61-82, February.
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    6. Markus Behn & Giacomo Mangiante & Laura Parisi & Michael Wedow, 2022. "Behind the Scenes of the Beauty Contest—Window Dressing and the G-SIB Framework," International Journal of Central Banking, International Journal of Central Banking, vol. 18(5), pages 1-42, December.
    7. Wayne Passmore & Alexander H. von Hafften, 2019. "Are Basel's Capital Surcharges for Global Systemically Important Banks Too Small?," International Journal of Central Banking, International Journal of Central Banking, vol. 15(1), pages 107-156, March.
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    11. Grill, Michael & Jakovicka, Julija & Lambert, Claudia & Nicoloso, Pascal & Steininger, Lea & Wedow, Michael, 2017. "Recent Developments in Euro Area Repo Markets, Regulatory Reforms and their Impact on Repo Market Functioning," Financial Stability Review, European Central Bank, vol. 2.
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    Cited by:

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    2. Baltzer, Markus & Schlepper, Kathi & Speck, Christian, 2022. "The Eurosystem's asset purchase programmes, securities lending and Bund specialness," Discussion Papers 39/2022, Deutsche Bundesbank.

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    More about this item

    Keywords

    systemically important bank; systemic risks; regulatory arbitrage; financial stability;
    All these keywords.

    JEL classification:

    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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