Global banking watchdog to crack down on 'window dressing' by big banks

A global banking watchdog is set to tighten regulations to curb "window dressing" practices among major banks. This move aims to address concerns about financial institutions manipulating their balance sheets to present a more favorable picture to regulators and investors. By cracking down on such practices, regulators seek to enhance transparency and accountability within the banking sector, promoting stability and integrity in financial reporting and risk management.

"The proposed revisions aim at constraining banks' ability to lower their G-SIB scores through window-dressing," the Basel Committee said in a statement

Global banking regulators set out potential measures on Thursday to crack down on "unacceptable" attempts by the world's biggest banks to game rules in a bid to avoid heavier capital requirements.

Globally systemic banks (G-SIBs) must hold more capital than their smaller domestic peers, based on a range of factors, which determines which "bucket" they are slotted into, and therefore how much extra capital they must hold.

The rules were introduced a decade ago after many lenders were bailed out by taxpayers in the global financial crisis.

 "The proposed revisions aim at constraining banks' ability to lower their G-SIB scores through window-dressing," the Basel Committee said in a statement.

 The aim is to stop "regulatory arbitrage behaviour" that seeks to temporarily reduce banks' perceived systemic footprint around the reference dates used for the reporting and public disclosure of G-SIB scores. 

"This will be achieved by requiring banks participating in the G-SIB assessment exercise to report and disclose most G-SIB indicators based on an average of values over the reporting year, rather than year-end values." The proposals are out to public consultation until June 7.

Banking regulators from the world's main financial centres are members of the Basel Committee and commit to applying agreed rules in their national handbooks for lenders.

Source: Business Standard‍