Basel to address banks' use of 'window dressing' to game leverage standards

8 October 2018 9:04pm
The Basel Committee on Banking Supervision plans to address banks’ use of short-term borrowing to game global leverage standards, a US Federal Reserve official said.

Many banks outside the US and UK are required by their regulators to report their leverage ratios only at the end of a quarter, said Norah Barger, a Fed senior adviser.

This quarterly reporting enables lenders to alter their funding within the quarter through use of repurchase agreements, or repos, that they then unwind at the end of the period — a practice known as “window dressing,” she said.

“The US has quarterly disruptions in the repo markets,” Barger said at an industry conference* last week. “If it should coincide with another market stress, we don’t know what will happen. It’s potentially very destabilizing.”