Abstract
AbstractWe investigate whether the regulatory improvements made in the aftermath of the global financial crisis have been effective in limiting bank downward window dressing by means of repos in the United States. We find that a strict application of the Basel III regulation wipes out incentives to engage in window dressing to bolster the level of leverage Tier 1 ratio at quarter‐end. We also show that the persistency of window dressing is related to the computation of the Federal Deposit Insurance Corporation assessment base, which motivates banks to engage in window dressing to reduce the deposit insurance premium.
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