Basel Committee Seeks to Clamp Down on G-SIB “Window Dressing”
Posted by Colin Lambert. Last updated: March 8, 2024
The Basel Committee has signalled its intention to clamp down on banks’ “window dressing” of their balance sheets at quarter and year-ends in an effort to minimise the regulatory impact of G-SIB (Globally systemically important Banks) rules.
Referring to the practice as “regulatory arbitrage” the Committee says the effort to reduce banks’ perceived systemic footprint around the reference dates used for the reporting and public disclosure of G-SIB scores, is “unacceptable”. Deeming such behaviour as undermining the intended policy objectives of the Committee’s standards, it adds the practice “risks disrupting the operations of financial markets”.
With this in mind, the Committee has published a consultation paper on potential measures to address “window dressing”, the main suggestion of which is that banks report their data based upon annual averages rather than point-in-time values. The Committee says it has also been considering the use of daily, month-end and quarterly reporting as well as year-end as part of its consideration. “The Committee sees benefits in the use of higher-frequency (ie daily) averaging as the default reporting frequency for G-SIB indicators,” it states. “Nonetheless, it seeks feedback on the broader range of averaging frequencies.”
It adds that it is considering the application of high-frequency averaging, in principle, for all stock G-SIB indicators, and will give due consideration to evidence brought forward on data
items where the reporting of high-frequency averages might be particularly challenging. Finally, it is also giving consideration to the scope of banks to which the revisions would
apply.
“The Committee sees the benefits of a wide application of the revisions to all banks participating in the G-SIB assessment exercise, but it is also seeking feedback on options that would apply those changes to a narrower set of banks to reduce the reporting burden,” it states.
Comments are welcomed until 7 June 2024, and the full consultation paper can be found here.
