Statement on a Request for Comment on Possible Changes to Statistical and Other Disclosures by Bank Holding Companies
Commissioner Kara M. Stein
U.S. Securities and Exchange Commission
March 1, 2017
I also want to thank the all the staff for the hard work that went into this release, including the team from Division of Corporation Finance and, in particular, Lindsay McCord from the Division’s Office of the Chief Accountant.
Today, the Commission is considering a staff recommendation to seek comment on potential changes to disclosure provided by publicly reporting bank holding companies. The recommendation also seeks comment on other possible disclosure improvements for public companies in the financial services industry.
In the early 1970s, the United States experienced a significant economic downturn. The period was marked by “stagflation” that combined low economic growth with high unemployment and high inflation. Newspapers and news magazines reported concerns about real estate trust loans, the potential failure of large banks, the quality of loan portfolios, and loans to insiders, amongst other things.
The uncertain economic conditions caused some public accounting firms to become concerned about how bank holding companies were evaluating their assets. The Commission also became concerned about the nature, quality, and extent of disclosure provided by bank holding companies to investors. In response, the Commission and the federal banking agencies worked, through an interagency group, to address these concerns and propose changes to the reporting requirements for banks.
As a result of this assessment process, in 1975, the Commission proposed disclosure guidance for bank holding companies, which it called Industry Guide 3, Statistical Disclosure by Bank Holding Companies.
The Commission’s approach was focused on the needs of investors. Industry Guide 3 set forth standards for statistical disclosure relating to certain balance sheet information and the composition and risk profile of the investment and loan portfolios held by such companies. The new Guide 3 disclosures were data-centric, and were designed to provide investors with the information they needed to properly assess sources of earnings and potential risks in the investments they held.
This new approach was novel because it focused on data rather than on text. Also, the Commission recognized that investors needed standardized, relevant and reliable data to enable them to make comparative evaluations for informed investment decisions. 
The Commission prioritized disclosure of quantitative estimates that reflected economic reality and the inherent uncertainties in financial reporting, rather than legal boilerplate.
Today, the Commission is requesting comment on the sufficiency of the disclosure standards within Guide 3 for publicly reporting banks and on potentially extending these disclosure standards to other reporting companies in the financial services industry.
Many changes have occurred in the years since Guide 3 was first published. Bank holding companies, as well as other types of financial services companies, hold varied portfolios that expose investors to significantly greater levels and types of risk.
In addition, non-interest income, which includes trading revenue, has become a larger component of some bank’s operations. In fact, for certain large financial institutions, non-interest revenue exceeds net interest revenue.
We must now ask whether Guide 3 standards continue to elicit meaningful information for investors. How can they be improved? Should other public companies in the financial industry provide similar disclosures? If so, which companies and what disclosures are now needed to help investors make informed investment decisions?
The Commission has a responsibility to foster the fairness and efficiency of our markets for the benefit of both investors and for public companies. Inherent in that responsibility is to ensure that investors have confidence that public companies “tell it like it is”.
This means providing investors with timely, relevant, and reliable data that they can use to make comparisons and maximize choice.
I encourage robust comment from investors and other market participants on how to improve both the disclosures provided, and investor access to such disclosure.
 See Statement of the Honorable Ray Garrett, Jr., Chairman, U.S. Securities and Exchange Commission, before the Senate Committee on Banking, Housing and Urban Affairs, “On the Matter of Disclosure by Banks and Bank Holding Companies in Connection with the Public Distribution of Their Securities”, July 16, 1975.
 Industry Guide 3 was adopted by the Commission in 1976. See 57 FR 36442.
 Issue Paper Memorandum, “SEC/Bank Dispute Concerning Required Disclosure in Bank Holding Company Registration Statement”, Gerald. R. Ford Library, June 10, 1975, “Investors are entitled to have the ‘raw’ financial data to enable them to make predictions as to the current and future prospects of banks”; and “[i]nvestors are entitled to similar data concerning all bank holding companies to enable them to make comparative evaluations for investment purposes.”
 Commissioner John R. Evans, U.S. Securities and Exchange Commission, “Tell it Like it Is”, Fall Meeting Association of Registered Bank Holding Companies, Palm Beach Florida, November 17, 1975.