According to a report today in the Wall Street Journal, the Securities and Exchange Commission is set to issue new disclosure rules for companies looking to reduce debt levels at the end of each quarter simply for reporting purposes. Inquiries into the use of repurchase agreements by financial services companies have revealed the widespread practice of reducing debt levels artificially. Here is what the WSJ has discovered.
Federal regulators are poised to propose new disclosure rules targeting “window dressing,” a practice undertaken by some large banks to temporarily lower their debt levels before reporting finances to the public.
The Securities and Exchange Commission is scheduled to take up the matter at a meeting Friday and is expected to issue proposals for public comment. The action follows a Wall Street Journal investigation into the practice, which isn’t illegal but masks banks’ true levels of borrowing and risk-taking.
A Journal analysis of financial data from 18 large banks known as primary dealers showed that as a group, they have consistently lowered debt at the end of each of the past six quarters, reducing it on average by 42% from quarterly peaks.
