Policy options to address window dressing in the G-SIB framework

Pär Torstensson and Peter Welz

Macroprudential Bulletin, 2023, vol. 23

Abstract: This article summarises the existing evidence of window dressing and seasonality of data at year-end reporting time for global systemically important banks (G-SIBs). Window dressing and seasonality of data distort the outcome of a point-in-time reporting framework, resulting in misleading bank disclosures, mismeasurement of bank risk, inappropriate capital requirements and misallocation of capital. Reduced activity at certain points in time can also be detrimental to market functioning and has the potential to amplify shocks that coincide with period-ends. These negative consequences are amplified by the global nature of the activities and the systemic risk of the banks concerned. Possible policy options for addressing this phenomenon include different reporting requirements, such as averaging over higher frequency data, to ensure that the measurement of a bank’s contribution to systemic risk and capital allocation is commensurate with its actual risk to the financial system and the real economy throughout the year. JEL Classification: G20, G21, G28

Keywords: global systemically important banks; macroprudential policy (search for similar items in EconPapers)
Date: 2023-12
Note: 494827
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