Window Dressing and the Designation of Global Systemically Important Banks

Luis Garcia (), Ulf Lewrick and Taja Sečnik ()
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Luis Garcia: European Banking Authority
Taja Sečnik: European Securities and Markets Authority

Journal of Financial Services Research, 2023, vol. 64, issue 2, No 3, 264 pages

Abstract: Abstract We study how banks’ year-end window dressing affects the identification of global systemically important banks (G-SIBs) and their capital requirements. Some G-SIBs reduce their balance sheet at year-end, especially their derivative books and intra-financial system exposures, to an extent that they can reduce their requirements or avoid G-SIB designation. While window-dressing G-SIBs benefit from lower funding costs during normal conditions, they face tighter funding constraints and increased systemic risk during stress episodes. Supervisory judgement is thus crucial in assessing G-SIBs, and greater use of average as opposed to point-in-time data in regulation is recommended to mitigate window dressing incentives.

Keywords: Systemically important bank; Systemic risks; Regulatory arbitrage; Financial stability (search for similar items in EconPapers)
JEL-codes: G20 G21 G28 (search for similar items in EconPapers)
Date: 2023
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DOI: 10.1007/s10693-023-00417-3

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