The Basel Committee has finalised this disclosure requirement to address the issue of “window dressing” by big banks whereby they reduce their balance sheets for end-quarter reporting and end-year disclousure purposes. This practice leads to disruptions in the lending market and possible misleading information to investors.
WOCCU commented on this proposal noting that credit unions are cooperative depository institutions that are not publicly traded, rarely operate on a cross-border basis and do not typically engage in the “window dressing” behavior addressed by the proposal. In fact, because members of credit unions are physical-person members and legal-person members (which are usually small and medium-enterprises), they often increase their deposits at the end of each quarter, driving their leverage ratios down for end-quarter or end-year reporting.
The final standard will likely not be applicable to most credit unions but apply to internationally-active banks and will require disclosure of quarter-end values and on average of daily values over the quarter as part of their Pillar 3 requirements, in addition to disclosure of the total leverage exposure and the leverage ratio calculated using an averaged value of securities financing transaction assets.
A copy of the standard can be viewed here.