How Do Global Systemically Important Banks Lower Capital Surcharges?

Global systemically important banks (GSIBs) are subject to capital surcharges that increase with systemic importance indicators. We show that U.S. GSIBs lower their surcharges to a large extent by reducing one indicator—the notional amount of over-the-counter derivatives—in the fourth quarter of each year, the quarter that determines surcharges. This seasonal drop is stronger at GSIBs than at other banks, it increased after GSIB surcharges were introduced, and it is largely driven by interest rate swaps. We discuss implications of these results for the design of systemic importance indicators.