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Window Dressing and the Designation of Global Systemically Important Banks

Author

Listed:
  • Luis Garcia

    (European Banking Authority)

  • Ulf Lewrick

    (Bank for International Settlements
    University of Basel)

  • Taja Sečnik

    (European Securities and Markets Authority)

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.

Suggested Citation

  • Luis Garcia & Ulf Lewrick & Taja Sečnik, 2023. "Window Dressing and the Designation of Global Systemically Important Banks," Journal of Financial Services Research, Springer;Western Finance Association, vol. 64(2), pages 231-264, October.
    • Handle: RePEc:kap:jfsres:v:64:y:2023:i:2:d:10.1007_s10693-023-00417-3
    DOI: 10.1007/s10693-023-00417-3
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    References listed on IDEAS

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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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