As an apparent follow-up to the reduced disclosure requirements under the FAST Act, the Securities and Exchange Commission (SEC) issued proposed updates to the statistical disclosures provided by banking registrants, including the following:
- Clarification of required disclosures and which registrants the disclosures are applicable to
- Amendment of reporting periods required in disclosures
- Amendments to disclosures to address duplicative disclosures or codify common disclosures
The disclosures provided by banking registrants are currently outlined in the SEC’s Industry Guide 3: Statistical Disclosure by Bank Holding Companies (Guide 3). As this guide isn’t a part of the SEC’s Rules, there can be some uncertainty as to whether disclosures are required. The proposed codification of these disclosures would clarify that these disclosures are required for all banking registrants.
The amendments would also clarify which registrants are within the scope of the disclosure requirements to include banks, bank holding companies, savings and loan associations, and savings and loan holding companies. This is expected to clarify current guidance and is not anticipated to significantly change which registrants are providing the linked disclosures.
Amendments to reporting periods
The availability of historical financial information through online access, and the SEC’s EDGAR System has provided an opportunity to decrease the amount of historical data required to be repeated in each filing, without decreasing the amount of information available to investors.
Current guidance requires a three-year historical period for most disclosures, with reduced disclosure periods for companies under $200 million of assets or $10 million of net worth as of the end of its latest fiscal year.
The proposed rule would retain the five-year historical period required for credit ratios but would reduce the reporting periods for all other disclosures to align with the related annual periods presented in the financial statements — generally two years of balance sheets and three years of income statements. This is expected to be most impactful for smaller reporting companies (SRCs, as defined by the SEC), which only report two years for both the balance sheets and income statements.
Amendments to disclosures
The disclosure requirements outlined in Guide 3 haven’t undergone significant review since 1986. Over the last 33 years, there have been considerable changes in disclosures required under generally accepted accounting principles (U.S. GAAP) and other Commission rules, leading to duplicative or outdated disclosures in the Guide. Overall, the proposed changes would reduce the amount of required disclosures, as can be seen in the table available for download below. A summary of some of the proposed changes includes:
- Increased categories of interest-earning assets and interest-bearing liabilities: In acknowledgement of the importance of liquidity in our banking system, the proposed rules require separate presentation of the average balances and or costs of certain instruments used to manage short-term liquidity needs.
- Alignment of disclosures with GAAP financials: Since the publication of Guide 3, disclosures required under U.S. GAAP have been revised to require detailed breakouts of activity by classification within the investment and loan portfolios. Many of the proposed revisions to the guide are in an effort to align the categories of loans and investments used for the disclosures under the guide with those used in the GAAP financial statements hopefully decreasing the reporting burden for corporations and enhancing the comparability of information available to investors.
- Uninsured time deposits: The guide currently requires disclosure of time deposits with a balance over $100,000. Proposed revisions would align the disclosure requirement with FDIC insurance limits, which is currently $250,000 per account.
- New credit ratio disclosures: Although the majority of the proposed changes reduce required disclosures, one proposed area of increased reporting is the introduction of required credit ratios, including the ratio of the allowance for loan losses to total loans, nonaccrual loans to total loans, and the allowance for loan losses to nonaccrual loans. As these ratios are commonly reported by banking registrants under current guidance, this change isn’t anticipated to significantly alter reported information; however, it should help standardize credit ratios reported to investors.
Overall, the proposed changes would reduce the amount of required disclosures
The proposed rules, announced on Sept. 17, 2019, are undergoing a 60-day comment period. The full text of the proposal is available from the SEC.