The Government Accountability Office (GAO) recently reviewed the securities disclosure regime for publicly traded banks without holding companies, which differs from the one applicable to bank holding companies and other public companies, and issued recommendations to Congress and the Securities and Exchange Commission (SEC).
Under the Securities Exchange Act of 1934, federal banking regulators review securities disclosures by publicly traded banks without holding companies. This contrasts with securities disclosures by publicly traded bank holding companies and other public companies, which the SEC reviews. Although only a handful of banks without holding companies are publicly traded, two of the banks that failed in 2023 fell within that group.
The GAO found that, while federal banking regulators review the securities disclosures of publicly traded banks, their review processes do not require the type of investor-focused qualitative assessment that the SEC performs for disclosures by other public companies. In particular, none of the banking regulators requires staff to qualitatively assess the content of annual securities disclosures, such as by evaluating whether required statements are not materially misleading and whether disclosures contain sufficient detail for investors about the banks’ financial condition. This appears to be because the regulators do not view their statutory missions as prioritizing investor protection, even though they are charged with applying federal securities laws to banks. Based on its findings, the GAO recommended that Congress reconsider whether securities disclosures by publicly traded banks should be subject to review by federal banking regulators rather than the SEC.
In addition, the GAO reviewed the SEC’s process for reviewing bank holding company disclosures about breaches of interest rate and liquidity risk tolerances. That review was driven by the GAO’s finding that the banks that failed in 2023 had not disclosed certain interest rate and liquidity risk-tolerance breaches or how management addressed them. The GAO recommended that SEC staff provide informal guidance on how such 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 SEC disagreed with the GAO’s recommendation based on its belief that targeted, fact-specific supervision is preferable to categorical guidance that may result in unintended consequences.