SEC, FASB Defend Right to Monitor Bank Reserves
Barancik, Scott, American Banker
Securities and accounting regulators refused to retreat Wednesday from a recent series of unilateral moves on bank loan-loss reserves.
Though they took a pummeling from lawmakers at a hearing sponsored by House Banking's financial institutions subcommittee, witnesses from the Securities and Exchange Commission and the Financial Accounting Standards Board were undaunted.
SEC General Counsel Harvey J. Goldschmid rebuffed a request from subcommittee Chairwoman Marge Roukema, R-N.J., to postpone the June 30 deadline for banks to adjust to new loan-loss guidelines. Banks have had plenty of time, he said.
"If a bank for some reason is having trouble and there are serious reasons why it needs an extra quarter," he said, "they should call the (SEC's) chief accountant. He'd certainly be open to discussion."
In a testy exchange with Rep. Richard H. Baker, R-La., Mr. Goldschmid said banks that want extra protection against an economic downturn should build capital-not reserves.
"If you want to put extra (protection) in, don't put it where it is disguised, where no one will understand it, and (where) management will be able to hide downturns," he said. "Put it in capital where it belongs."
Mr. Goldschmid remained steadfast on a variety of other issues.
He challenged the notion that typical investors can spot "earnings management." He said loan-loss guidelines issued April 12 by the FASB were exposed to more than enough comment from banks and bank regulators. He denied that the SEC is targeting banks for loan-loss reserve irregularities.
"There are no hit lists, there are no suspicions," he said.
Mr. Goldschmid said it would be "terribly wasteful" for the SEC to consult with bank regulators every time it wanted to query a bank about its reserves.
The hearing was meant to "clear the air" on the controversial issue, Rep. Roukema said. Instead, Democrats and Republicans attacked Mr. Goldschmid and Timothy S. Lucas, the FASB's director of research.
Bank and securities regulators began tussling over the reserves issue last fall, when the SEC held up SunTrust Banks Inc.'s acquisition of Crestar Financial Corp. until SunTrust agreed to restate its earnings and cut reserves.
Interagency agreements reached in November and March seemed to promise an end to the bickering. …