Regulators Propose New Bank Capital Rules to Limit Year-End Risk Window Dressing
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Global regulators proposed banks use average risk metrics over the year rather than year-end numbers to calculate capital requirements. This aims to limit "window dressing".
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Looking at JPMorgan and Bank of America, the proposal could impact their US repo market funding businesses where they lower cross-jurisdictional activity at year-end.
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The changes could make it costlier for banks to participate in repo markets and for foreign investors. This may impact Treasury market functioning.
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Banks argue daily averaging is unnecessary and that capital requirements don't account for economic growth. But regulators view it as improving stability.
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It's uncertain if daily averaging will be implemented as proposed, with banks wanting month-end or quarter-end figures. But it would restrict banks' ability to take on more risk without consequences.