SEC Eyes New Rules on Banks' Debt-Level Disclosure

3:15 AM, Sep 17, 2010   |    comments
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WASHINGTON (AP) -- In the future, it could get a lot tougher for
financial firms to hide their level of debt.

At a meeting this morning, federal regulators are planning to
propose new rules that apply to the practice of banks temporarily trimming their debt at the end of a quarter to make their financial statements appear stronger. The practice is legal, but regulators say it can give investors a distorted picture of a bank's debt and level of risk.

Lehman Brothers used the practice as an accounting
trick in the months before it collapsed two years ago in the
biggest bankruptcy in U.S. history.

At the end of the quarter, Lehman would sell billions in
mortgage securities - meaning they would be wiped off its balance sheet when shareholders and regulators took a look. Then, Lehman would quickly buy back those securities.

Once the Securities and Exchange Commission proposes the rules, they'll be open to public comment

Associated Press

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