Featured Product

    BIS Publications Discuss Credit Losses and Window Dressing at Banks

    August 18, 2021

    BIS published a working paper that examines whether banks are window dressing their balance sheets to avoid tougher regulation and a bulletin that discusses the forecast for corporate credit losses resulting from pandemic. The bulletin notes that credit risk forecasts should provide information both about losses in a baseline scenario (expected losses) and about the potential for extreme outcomes (unexpected losses). The results presented in the bulletin indicate that, while necessary and effective in containing losses so far, the policy response to the crisis has generated considerable uncertainty, with a wide range of possible loss rate paths up to 2024. To the extent that future losses fall outside government guarantees, the high unexpected loss forecasts indicate that the adequate amount of capital for exposures to U.S. corporate loans could be substantial.

    The working paper on window dressing by banks explores whether banks are adjusting their balance sheets to avoid tougher regulation, by studying the assessment of global systemically important banks (G-SIBs). The paper examines the evolution of the G-SIB "score" around supervisory reporting dates for a large sample of banks in the European Union. The score is the regulatory measure that determines banks' G-SIB status and the attendant capital requirements. It predominantly relies on a snapshot of banks' balance sheets at year-end. The paper shows how banks in the European Union compress their G-SIB score at year-end and highlights that these adjustments distort the supervisory assessment of the systemic importance of banks. While a variety of factors may be driving banks' window dressing, the paper shows that the tightness of capital requirements plays an important role and sheds light on how the G-SIB rules interact with other regulatory requirements, such as national capital surcharges. The findings argue in favor of moving away from using point-in-time data in regulatory requirements and making greater use of averages. The findings also highlight the importance of supervisory judgment in the assessment of G-SIBs. This could help address window dressing by banks and mitigate any associated adverse impact on financial markets.

     

    Related Links

    Keywords: International, Banking, Credit Risk, Loan Moratorium, Public Guarantee Schemes, COVID-19, Debt Servicing Ratio, Basel, G-SIBs, Regulatory Capital, G-SIB Assessment, Window Dressing, BIS

    Featured Experts
    Related Articles
    News

    APRA Issues Interim Update to Policy Priorities for 2021 and Beyond

    In a letter addressed to the industry, the Australian Prudential Regulation Authority (APRA) set out an updated schedule of policy priorities for the banking, insurance, and superannuation industries.

    September 24, 2021 WebPage Regulatory News
    News

    EC Adopts Solvency II and Resolution Rules Package for Insurers

    The European Commission (EC) adopted a comprehensive review package of Solvency II rules in the European Union.

    September 22, 2021 WebPage Regulatory News
    News

    OCC Issues Booklets on Regulatory Reporting and Earnings

    The Office of the Comptroller of the Currency (OCC) issued Versions 1.0 of the "Earnings" and "Regulatory Reporting" booklets of the Comptroller's Handbook.

    September 22, 2021 WebPage Regulatory News
    News

    ECB Sets Out Results of Economy-Wide Climate Stress Tests

    The European Central Bank (ECB) published results of its economy-wide climate stress test, which aimed to assess the resilience of non-financial corporates and euro area banks to climate risks.

    September 22, 2021 WebPage Regulatory News
    News

    EBA Examines Implications of Increasing Use of Digital Platforms in EU

    The European Banking Authority (EBA) published a report on the use of digital platforms in the banking and payments sector in European Union.

    September 21, 2021 WebPage Regulatory News
    News

    HKMA Issues Updates on Policy Measures Intended to Ease COVID Impact

    The Hong Kong Monetary Authority (HKMA) published updates on the policy measures that were announced in context of the ongoing pandemic.

    September 21, 2021 WebPage Regulatory News
    News

    ISDA Responds to BCBS Proposal on Treatment of Cryptoasset Exposures

    The International Swaps and Derivatives Association (ISDA), along with several other associations, submitted a joint response to the Basel Committee on Banking Supervision (BCBS) consultation on preliminary proposals for the prudential treatment of cryptoasset exposures.

    September 21, 2021 WebPage Regulatory News
    News

    BIS Quarterly Review Discusses Developments in Fintech and ESG Space

    BIS published the September issue of the Quarterly Review, which contains special features that analyze the rapid rise in equity funding for financial technology firms, the effectiveness of policy measures in response to pandemic, and the evolution of international banking.

    September 20, 2021 WebPage Regulatory News
    News

    BCBS to Consult on Supervisory Practices for Climate Risks by Year-End

    The Basel Committee for Banking Supervision (BCBS) met in September 2021 and reviewed climate-related financial risks, discussed impact of digitalization, and welcomed efforts by the International Financial Reporting Standards (IFRS) Foundation to develop a common set of sustainability reporting standards

    September 20, 2021 WebPage Regulatory News
    News

    OCC Identifies Operational Risk Deficiencies in MUFG Union Bank

    The Office of the Comptroller of the Currency (OCC) issued a Cease and Desist Order against MUFG Union Bank for deficiencies in technology and operational risk governance.

    September 20, 2021 WebPage Regulatory News
    RESULTS 1 - 10 OF 7494