WASHINGTON, D.C. — Federal regulators voted Friday to propose new rules that could make it harder for financial firms to disguise their level of debt.
The Securities and Exchange Commission is proposing expanded disclosure requirements for banks’ practice of temporarily trimming their debt at the end of quarters to make their financial statements appear stronger. The practice is legal but regulators say it can give investors a distorted picture of a bank’s debt and level of risk.
The proposal would require financial firms to report detailed information on their short-term borrowing every quarter. Firms currently are required to disclose that borrowing only once a year.
SEC commissioners voted 5-0 at a brief meeting to propose the new rules and open them to public comment for 60 days. They could be formally adopted them sometime later, possibly with changes.
Under the proposed rules, banks would be required to report the amount outstanding of their short-term borrowings at the end of each quarter and the average interest rate they paid on the loans. They also would have to report the average amount of borrowings outstanding during the quarter and the average interest rate, as well as the maximum amount outstanding.
Commissioner Luis Aguilar said the expanded disclosure rules are helpful but won’t necessarily prevent deception by firms to make their balance sheets appear less risky than they are.
“Rules on the books are not enough; they have to be enforced,” he said.