Background and legislative action

September 18, 2011

Background

Since the 1920s, national banks were required by Congress, and state banks by legislatures, to publish statements of condition in the newspapers in communities where they did business. The “call reports” ran periodically in newspapers. They provided information about solvency, indebtedness and reserves. The reports are still required by the Comptroller of the Currency, but in 1994 Congress eliminated publication. The repeal occurred with no public hearing, and little explanation. Most state legislatures quickly followed suit, repealing their own requirements.

Since then, the public has faced substantial challenges determining whether their banks are sound. In 2007, the public began to learn that many financial institutions, as well as Fannie Mae and Freddie Mac, were writing mortgages for borrowers unable to repay them, and that Wall Street was rolling the loans into complex, insured securities. The collapse of the housing market brought down this house of cards and led to taxpayer-funded bailouts of institutions deemed too large to fail. The fallout from this collapse increased costs for community banks that did not engage in risky lending, created a credit freeze that bankrupted many small businesses, eliminated taxpayers’ jobs and caused the federal debt to soar to over $11 trillion. Each taxpayer’s share of debt is now over $37,000.

Legislative action

HR 2727, introduced by Rep. Walter Jones, R-NC, will reinstate public financial reporting through newspaper public notice. The bill would require the Treasury Department to create new regulations defining the information that must be disclosed.

Congress should restore transparency

  • It does not require tax dollars. The modest sums that would be required of banks to report to the public would be a tiny fraction of the public’s considerable expense in bailing out financial institutions.
  • Websites are not enough. Determining a bank’s condition on the Internet can frustrate even an expert. The public is accustomed to finding public notice in local newspapers, where information is most accessible to the greatest number of Americans.
  • Public confidence is critical. Economic recovery hinges upon reassuring the public that it can trust sound banks. To be reassured, Americans need to be able to see for themselves what their banks are doing.
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