Window dressing of regulatory metrics: Evidence from repo markets

Window dressing of regulatory metrics: Evidence from repo markets

This paper investigates both the magnitude and the drivers of bank window dressing behavior in euro-denominated repo markets. Using a confidential transaction-level data set, our analysis illustrates that banks engineer an economically sizeable contraction in their repo transactions around regulator...

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Bibliographic Details
Published in:Journal of financial intermediation Vol. 58; p. 101086
Main Authors: Bassi, Claudio, Behn, Markus, Grill, Michael, Waibel, Martin
Format: Journal Article
Language:English
Published: Elsevier Inc 01-04-2024
Subjects:
Banking regulation
G-SIBs
Leverage ratio
Repo markets
Window dressing
Repo markets
G-SIBs
C23
Leverage ratio
G21
G14
Banking regulation
G28
G18
Window dressing
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Summary:This paper investigates both the magnitude and the drivers of bank window dressing behavior in euro-denominated repo markets. Using a confidential transaction-level data set, our analysis illustrates that banks engineer an economically sizeable contraction in their repo transactions around regulatory reporting dates. We establish a causal link between these reductions and banks’ incentives to window dress and document the role of the leverage ratio and the G-SIB framework as the most relevant drivers of window dressing behavior. Our findings suggest that regulatory action is warranted to limit banks’ ability to window dress.
ISSN:1042-9573
1096-0473
1096-0473
DOI:10.1016/j.jfi.2024.101086