By Luis Garcia, Ulf Lewrick and Taja Sečnik
Global systemically important banks (G–SIBs) are key nodes in the financial system. The identification of G–SIBs
and the attendant calibration of capital surcharges to bolster their resilience is thus a supervisory priority.
However, the G–SIB assessment largely relies on year–end snapshots of the banks’ balance sheets, providing
incentives for banks to window dress them. We study banks’ year–end window dressing in the European Union
(EU) and find that some G–SIBs compress their balance sheet at year–end to an extent that they can reduce
their surcharges or avoid G–SIB designation altogether. The compression of intra–financial system assets and
liabilities as well as over–the–counter derivatives stand out as key margins of adjustment 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.