Bank response to SEC disclosure guidance issued during the 2007–2008 US financial crisis

Abstract

During 2008 the SEC increased its focus on the need for additional disclosures by banks and financial institutions, and issued specific guidance on disclosures of fair value estimates in the Management’s Discussion and Analysis (MD&A). In addition, the SEC and FASB issued joint guidance for determining estimates of fair value. In this study we analyze the critical accounting policy and estimate disclosures in the MD&A of 20 of the largest publicly-traded US banks for 2007 and 2008. The results of prior research into disclosure change in response to additional regulatory guidance predict that the length of the disclosures will increase; it is more difficult to predict changes in disclosure content in response to such guidance. We find the number of total sentences and accounting topics the banks disclosed significantly increased. The increases occur in accounting topics most severely affected by the financial crisis, and often specifically identified in SEC guidance. The disclosure content of these topic disclosures also significantly increased. However, we find that only 35% of the banks disclosed that they had discussed the estimates with their audit committee, and only two disclosed the accuracy of past estimates.