October 2021 – SUERF Policy Brief “Is window dressing by banks systemically important?”

By Luis Garcia, Ulf Lewrick and Taja Sečnik

Global systemically important banks (GSIBs) are key nodes in the financial system. The identification of GSIBs
and the attendant calibration of capital surcharges to bolster their resilience is thus a supervisory priority.
However, the GSIB assessment largely relies on yearend snapshots of the banksbalance sheets, providing
incentives for banks to window dress them. We study banksyearend window dressing in the European Union
(EU) and find that some GSIBs compress their balance sheet at yearend to an extent that they can reduce
their surcharges or avoid GSIB designation altogether. The compression of intrafinancial system assets and
liabilities as well as overthecounter derivatives stand out as key margins of adjustment at yearend.
Moreover, GSIBs 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 GSIBs and call
for greater use of average as opposed to pointintime data to measure bankssystemic importance.

Link: Is window dressing by banks systemically important?