SEC to require banks to disclose liquidity

SEC to require banks to disclose liquidity

By Joanna Chung and Ben White in New York

Published: May 7 2008 23:53 | Last updated: May 7 2008 23:53

Wall Street banks will soon be required by US regulators to disclose publicly more details about capital and liquidity positions, according to the head of the Securities and Exchange Commission.

Christopher Cox, chairman of the SEC, which oversees investment banks under a voluntary supervisory programme, said on Wednesday that the disclosures would be “in terms that the market can readily understand and digest”.

The requirements come amid growing regulatory scrutiny of the financial health of large investment banks following the rapid collapse in March of Bear Stearns, which suffered a sudden loss of liquidity over a matter of days.

Lawmakers have also called for tighter supervision of investment banks since they were given emergency access to the Federal Reserve’s discount borrowing window following the emergency rescue of Bear.

The SEC, which has already strengthened the liquidity requirements for investment banks – relative to their unsecured funding needs – are currently obtaining funding and liquidity information from companies on a daily basis.

But the banks “will institute public disclosure of their capital ratios computed under the Basel Standard later this year, and then phase in additional disclosure related to concentration of exposures”, Mr Cox said in a prepared speech in Washington on Wednesday.

Executives at several investment banks on Wednesday noted that they already disclose fairly extensive information about their liquidity and capital positions as well as the amount of leverage they employ and the amount they could lose in a single trading day.

These executives said Mr Cox might have been referring to the possible enactment of a new rule that would require them to disclose their Tier 1 capital, a ratio comparing equity to risk-weighted assets. The executives said they would welcome such a requirement because they believe their ratios are strong and would be reassuring to investors.

Regarding more oversight, Wall Street executives generally assume that the Fed will take a larger role following its decision to allow investment banks to access the discount borrowing window.

Mr Cox on Wednesday also urged lawmakers to pass legislation to give the SEC or another regulator the explicit mandate to supervise investment banks. “The statutory no-man’s land...should not be tolerated indefinitely,” he said.

“Very soon, the SEC — or if not the SEC then another regulator — must be given the express authority and a regime appropriately tailored to securities firms to supervise the nation’s investment banks on a ­consolidated basis.”