Shearman & Sterling LLP | Financial Regulatory Developments Focus | Basel Committee on Banking Supervision Highlights Concerns About Leverage Ratio "Window-Dressing"
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  • Basel Committee on Banking Supervision Highlights Concerns About Leverage Ratio "Window-Dressing"
    10/18/2018
    The Basel Committee on Banking Supervision has issued a statement on leverage ratio "window-dressing" behavior by banks.

    To comply with the Basel III leverage ratio standard, among other things, banks are required to publicly disclose their leverage ratio, calculated on a quarter-end basis, or more frequently in certain jurisdictions. The Basel Committee has noted what may be a tendency in banks to engage in so-called window-dressing by temporarily reducing transaction volumes around key reference dates, which has the effect of allowing banks to report and publicly disclose higher leverage ratios.

    The Basel Committee states that window dressing is unacceptable as it undermines the policy objectives of the leverage ratio standard and risks disrupting the operations of financial markets. The Basel Committee calls on banks to desist from undertaking transactions for window-dressing purposes and makes several suggestions for actions by supervisors to address these concerns. These include increasing the frequency of reporting and supervisory monitoring, focused supervisory inspections and/or additional public disclosures. The Basel Committee will continue to monitor potential window-dressing behavior and may consider adjusting the Pillar 1 minimum capital requirements and/or Pillar 3 disclosure requirements if necessary.

    View the Basel Committee's Statement.

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