SEC to Inspect ‘Window Dressing’ Fakeouts on Bank Balance Sheets

The Securities and Exchange Commission plans to make new rules governing banks’ deployment of “window dressing,” the practice of reducing

The Securities and Exchange Commission plans to make new rules governing banks’ deployment of “window dressing,” the practice of reducing a company’s debt load shortly before providing a required quarterly balance-sheet update to investors, according to a report by The Wall Street Journal.

Sign Up For Our Daily Newsletter

By clicking submit, you agree to our <a href="http://observermedia.com/terms">terms of service</a> and acknowledge we may use your information to send you emails, product samples, and promotions on this website and other properties. You can opt out anytime.

See all of our newsletters

The Journal proudly proclaims that the SEC’s decision follows its own reporting on the practice.

In the wake of the crisis of 2008, investors and regulators are understandably concerned about banks’ debt levels, since it was massive debt that helped create the panic that eventually brought down Bear Stearns and Lehman Brothers. And so banks are, unsurprisingly, doing their best to make everyone think that they have less debt than they do.

Window dressing isn’t illegal, just enormously dishonest. The Journal‘s investigation of 18 banks shows that the companies would on average report debt levels 42% lower than their quarterly peaks.

As a remedy, the SEC is contemplating further action beyond simply saying “C’mon, you guys, you have to tell the truth!” according to The Journal.

The agency’s staff has been considering whether banks should be required to provide more frequent disclosure of their average borrowings, which would give a better picture of their debt throughout a quarterly period than do period-end figures.

Regulators require banks to disclose their average borrowing rates once a year, and other companies never have to make such disclosures.

SEC to Inspect ‘Window Dressing’ Fakeouts on Bank Balance Sheets