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US Securities and Exchange Commission

SEC Overhauls Bank Disclosure Requirements

Thomson Reuters Tax & Accounting  

· 5 minute read

Thomson Reuters Tax & Accounting  

· 5 minute read

By Soyoung Ho

The SEC on September 11, 2020, issued a final rule overhauling the types of figures and statistics banks disclose so investors can better assess their financial conditions and outlook. The rule replaces an old industry guide with an updated disclosure regime that more accurately reflects today’s banking environment.

Industry Guide 3 (IG) No. 3Statistical Disclosure by Bank Holding Companies, was issued in 1976 and updated several times until 1986, but it has not been revised in the past three decades despite the financial industry’s growth, diversification, and increased complexity during that time. Analysts said they want more sophisticated and useful information to better understand a bank’s performance.

“Today’s rules are another example of the SEC’s commitment to improving public company disclosures for investors through retrospective review and modernization,” SEC Chairman Jay Clayton said in a statement. “Guide 3 has not been substantively updated for more than 30 years. The changes we are adopting today are designed to elicit better disclosures for investors and add efficiencies to the compliance efforts of registrants.”

The final rule updates and codifies certain parts of IG 3 in new Subpart 1400 of Regulation S-K, the repository of public company disclosure requirements outside the financial statements. It rescinds IG 3, which is not a commission rule.

The rules are in Release No. 33-10835Update of Statistical Disclosures for Bank and Savings and Loan Registrants. It becomes effective 30 days after publication in the Federal Register. The rules will apply to fiscal years ending on or after December 15, 2021. Banks can apply the changes early. Guide 3 will be rescinded effective January 1, 2023.

In particular, Release No. 33-10835 requires disclosure of:

  • distribution of assets, liabilities and stockholders’ equity, the related interest income and expense, and interest rates and interest differential;
  • weighted average yield of investments in debt securities by maturity;
  • maturity analysis of the loan portfolio including the amounts that have predetermined interest rates and floating or adjustable interest rates;
  • certain credit ratios and the factors that explain material changes in the ratios, or the related components during the periods presented;
  • allowance for credit losses by loan category; and
  • bank deposits including average amounts and rate paid and amounts that are uninsured.

“The SEC is very much focused on pursuing their ambitious rule making agenda and finishing adopting and modernizing these rules prior to the election,”  Dave Brown, a partner with Alston & Bird LLP, said. “Given the importance of banks and liquidity to our economy and financial system during the pandemic the SEC likely wanted to get the disclosure modifications to the market as soon as possible. As noted in the release, it has been years since the SEC has modernized these disclosure requirements. These amendments should assist investors in understanding banks operations and financial position and assist in comparing banking institutions.”

The rules apply to domestic and foreign bank holding companies, banks, savings and loan holding companies, and savings and loan associations. Banks must disclose the information annually and any additional interim period if there is a material change.

The SEC also eliminated disclosure items that are duplicative of other commission rules and requirements in the FASB’s accounting standards or the IASB’s IFRS.

No XBRL Requirement

When the SEC issued the proposal on the banking disclosure rules in September 2019, in Release No. 33-10688Update of Statistical Disclosures for Bank and Savings and Loan Registrants, analysts as well as the SEC’s own Investor Advocate asked the commission to require the updated data to be machine-readable.

The commission did not propose a requirement for banks to report the disclosures using the eXtensible Business Reporting Language (XBRL) format. The capital market regulator did ask whether such requirement is necessary, however.

Analysts say that structured format is timelier and significantly less expensive to process. This would make analysis more efficient.

The SEC in the final rule does not specify where Item 1400 should be disclosed. Had the commission required banks to disclose the data in the footnotes of the financial statements, the information would be subject to XBRL tags.

“We agree with commenters that retaining flexibility as to where to provide the disclosures is important and will allow registrants to use their judgment to determine where the disclosures can best be included to maximize the readability and usefulness of the disclosure,” the SEC said in final Release No. 33-10835. “We are cognizant of the additional costs that would be incurred if the disclosures were required to be included in the notes to the financial statements, and we believe investors are accustomed to locating this information in different locations within SEC filings given the current flexibility as to where to include the disclosures.”

The commission said that banks can always choose to include the data in XBRL in the financial statements.

Role of Guide 3

The SEC is in the middle of phasing out industry guides, and updating them in Reg S-K the past few years.

Guide 3 was first published as “a convenient reference to the statistical disclosures sought by the staff of the Division of Corporation Finance in registration statements and other disclosure documents filed by bank holding companies,” the SEC said in last year’s proposal.

Guide 3 calls for disclosure in seven areas: distribution of assets, liabilities and stockholders’ equity; interest rates and interest differential; investment portfolios; loan portfolios; summary of loan loss experience; deposits; return on equity and assets; and short-term borrowings.

“The Division believed that disclosure of the same statistical information about BHCs on a regular, periodic basis would assist in assessing their future earning potential and enable investors to compare BHCs more easily,” Release No. 33-10688 stated.


This article originally appeared in the September 15, 2020 edition of Accounting & Compliance Alert, available on Checkpoint.

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