On 18 October 2018, the Basel Committee on Banking Supervision (Basel Committee) issued a statement on ‘leverage ratio window-dressing behaviour’. This is a form of temporary reductions of transaction volumes in key financial markets around reference dates resulting in the reporting and public disclosure of elevated leverage ratios.
The Basel Committee states that window dressing by banks is unacceptable as it undermines the intended policy objective s of the leverage ratio requirement and risks disrupting the operations of financial markets.
The statement goes on to suggest certain actions that supervisors might take in order to address potential window dressing activities. This includes additional public disclosures on the impact of volatility in transaction volumes between reporting reference dates on bank leverage in order to ensure that an accurate view of the institution’s risk profile and indebtedness is provided to external stakeholders.