Bank Window Dressing: A Re-Assessment and a Puzzle

National bank window dressing and the call loan market, 1865–1872

“…For example, bank officers may obtain higher salaries from managing larger, more prestigious banks. Yang and Shaffer (2010) update the results of Allen and Saunders for the post-2000 period and observe that large banks continue to upward window dress total assets. Using individual bank transactions, Furfine (2004) shows foreign banks pay higher interest rates to lend to U.S. commercial banks around year end reporting dates in order to display a safer lending portfolio.…”

Window dressing in the banking sector of an emerging economy: evidence from aggregate data

“…Unlike Kotomin and Winters (2006) and Yang and Shaffer (2010), we make it explicit that window dressing involves only assets and liabilities that are under the control of banks. On the one hand, Kotomin and Winters (2006) argue against window dressing on the grounds that balance sheet changes are “prompted by patterns of customer demand”, which makes one wonder if they imply that no balance sheet items are under the control of banks.…”

“…In addition, patterns of deposit balances suggest that the overall changes are driven by customer demand rather than banks’ initiative. Yang and Shaffer (2010) find evidence for upward window dressing in total deposits and “other loans” (including consumer loans, agricultural loans and foreign loans) and for downward window dressing in commercial loans and total loans. If the propositions put forward by Allen and Saunders are valid, then one could argue that deposits and loans are not entirely under the control of banks, in which case the behaviour observed by Yang and Shaffer (2010) may not constitute window dressing.…”

“…Window dressing as practiced by US banks is examined by Yang and Shaffer (2010) who find substantial heterogeneity in the pattern of window dressing across banks and products and that the observed patterns are not necessarily customer-initiated. Based on their results, they cast doubt on the efficacy of financial disclosure in constraining banks’ behaviour.…”

“…Banks in particular indulge in window dressing to satisfy regulatory requirements, particularly since the advent of the Basel rules. Yang and Shaffer (2010) argue that: [. .…”