Tuesday, August 17, 2010

Democratic Senators Call For Better Off-Balance Sheet Disclosure

A half-dozen Democratic senators, including both California solons, have called on SEC chief Mary Schapiro to improve disclosure of off-balance sheet (OBS) debt and repurchase agreements. The authors stated that the present quarterly "snapshots" and vaguely-enforced standards on disclosure have led to numerous abuses by large financial institutions such as Lehman Brothers, Citigroup and Bank of America. They called for greater disclosure of off-balance financing in the annual 10-Ks and also period-end and daily average financial leverage ratios in the notes to the financials.

There is good reason to believe that over-regulation of American business, combined with uncertainty related to major recent legislation, is impeding the robustness of the present recovery--and could even lead to a small "rebound" recession. Having said that, the fans of regulation get an undeserved boost when businesses and their auditors approach disclosure from the perspective of "what is the minimum acceptable" rather than "what would be most consistent with the principle of full disclosure." I am not sure why these proposals were not included in the recently-passed financial regulation law, but must acknowledge that Ms. Boxer, in particular, has made a savvy political move here in her tough re-election campaign.


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