Authority to review some banks’ annual financial disclosures should be reassessed, perhaps shifted to the federal agency that oversees security markets, the congressional watchdog recommended in a report issued Thursday.
The security market oversight agency, the Securities and Exchange Commission (SEC) disagreed with the recommendation, the Government Accountability Office (GAO) said, and won’t adopt it.
The recommendation concerns annual financial disclosures of public banks without holding companies, the GAO said. The recommendation was made, the agency said, for investor protection purposes.
“The Chairman of the Securities and Exchange Commission should ensure that the Director of the Division of Corporation Finance provides informal staff guidance, such as through Corporation Finance Interpretations or another public source, on how companies should assess whether breaches of interest rate risk and liquidity risk tolerance levels are material information for investors, particularly during periods of rising interest rates,” the GAO said.
Such expansion of authority, the GAO noted, would require congressional action. It noted that Congress and the SEC already require public companies to disclose information that investors would find important when making investment decisions, and that the SEC is required by law to review public companies’ disclosures.
“However, 11 public banks—including two with more than $80 billion in assets—are not subject to SEC review because they operate without a corporate parent known as a bank holding company,” the GAO stated.
It also noted that two of the three banks that failed in spring 2023 operated without a holding company, and that shareholders lost more than $29 billion in investments in these two banks between the end of 2022 and May 2023. “For those banks, Congress charged banking regulators with certain functions and duties of SEC. However, GAO found that banking regulators’ review processes, unlike SEC’s, do not assess disclosures for investors’ benefit. Reassessing disclosure review authority could help Congress determine whether changes are needed to strengthen investor protection.”
In a response to GAO, SEC Chairman Paul S. Atkins said his agency did not concur with the watchdog’s proposal, and declined to adopt it.
“Internal risk-tolerance metrics vary significantly across institutions in methodology, calibration, and supervisory context,” Atkins wrote to GAO in response to the recommendation. “They are management tools, not regulatory benchmarks, and are not appropriate bases for uniform disclosure standards. Creating a disclosure framework around internal benchmarks may also impact managements’ considerations when setting benchmarks, which could result in unintended consequences that negatively impact managements’ ability to oversee and manage risks.”
Atkins said his agency “respectfully decline to adopt GAO’s recommendation.”
Bank Financial Disclosures: Actions Needed to Improve Oversight of Information Provided to Investors
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