GAO Targets Disclosure Loophole for Banks Without Holding Companies
A new report finds 11 publicly traded banks, including two that failed in 2023, are not subject to SEC disclosure review, prompting a direct recommendation for congressional action.
The U.S. Government Accountability Office (GAO) has recommended Congress reassess the oversight of financial disclosures for publicly traded banks that operate without a holding company. A new GAO report found a regulatory gap where 11 such banks, including two with over $80 billion in assets, are not subject to the SEC’s qualitative disclosure review process. Instead, their filings are reviewed by banking regulators like the FDIC, Fed, and OCC, which the GAO found apply a less stringent standard.
This matters because two of the three banks that failed in spring 2023 used this structure, costing shareholders more than $29 billion. The report noted those banks had exceeded internal interest rate and liquidity risk tolerances but did not disclose the breaches. The current fragmented system allowed material risks to remain hidden from investors. Counsel for financial institutions should now monitor for legislative proposals to close this loophole, which would likely subject these banks to SEC-equivalent disclosure scrutiny. While the GAO also suggested the SEC issue related guidance on materiality, the SEC disagreed, citing the variability of internal bank metrics.