How averaging will solve Wall Street's repo window dressing problem

17 January 2024/No Comments
By Nick Dunbar

The Federal Reserve’s Basel Endgame is about to solve an age-old problem: How big is a bank’s balance sheet? Right now, it depends when you look. For the largest six US banks, some parts of their balance sheets are on average $500 billion larger than on the quarter-end dates when regulatory ratios are calculated, according to the Risky Finance banking tool.

How Wall Street banks shrink their balance sheets at quarter-end
This visualisation shows the difference between two identical measures – ‘Federal funds sold and securities purchased for resale’ – at quarter-end and averaged through the quarter.

Subscribe to access to our ten-year database of bank risk disclosures, many not available anywhere else.

As soon as financial institutions were first required to obey minimum solvency or leverage ratios, calculated on certain dates, then regulators noticed a tendency to breach such limits on other dates. In the 1960s, a Federal Reserve governor, James Robertson, coined the phrase ‘window dressing’ to describe it, using an analogy with department stores that displayed desirable fashions in their windows, that were not available inside the store.

Related Articles