Window Dressing of Short-Term Borrowings

We investigate bank holding companies’ window dressing of quarter-end short-term borrowings. We find evidence of downward window dressing of short-term borrowings through repo and federal funds that appears material for a large fraction of the sample. Such downward window dressing is more pronounced at banks with higher leverage, lower capital adequacy ratios, and greater management compensation sensitivity to ROA and ROE. Consistent with this downward window dressing being a net detriment to equity holders, we document a negative equity market reaction to the release of regulatory filings that indicate unexpected downward window dressing in these accounts. Finally, we find evidence of window dressing of short-term borrowings within private banks, suggesting that non-equity market considerations provide key window dressing incentives. The potential implications of our findings go beyond bank holding companies and the financial industry, and bear relevance to recent SEC deliberations regarding short-term borrowing disclosure regulation. JEL Classification: G14; G21; G28; M40