Regulators Call Time on Banks’ ‘Window Dressing’
Balance Sheet Stress, Bank Failures, Bank of England, Bond Markets, FT, Money Market Fund Reform, PRA, Regulators, Regulatory Reform, Repo, UK Macro, US Treasuries
Excellent article by Nicholas Dunbar on the FT’s Banking Risk and Regulation. How big is a bank’s balance sheet? It depends on when you look. For the largest six US banks, some parts of their balance sheets are on average $500bn larger than on the quarter-end dates when regulatory ratios are calculated! 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. Temporarily shrinking a bank balance sheet isn’t easy. Most bank assets are long-dated loans that can’t readily be transferred to another party. However, repurchase agreements, where a bank lends money overnight by purchasing a security from a counterparty, and selling it back the next day, can be used in this way. Very good read.