Mirabile Dictu! SEC Prods Banks Over Mortgage Litigation Reserves

When the SEC wakes up and starts acting like a regulator, you know something serious is afoot.

The Wall Street Journal reports that the securities agency, spooked by Bank of America setting aside over $20 billion for mortgage-related liability, has sent letters to “a number of banks” asking them to do a better job of disclosing what their legal liability is (the elephant in the room is of course the mortgage mess) and making adequate reserves. Per their story:

The SEC is focusing on whether banks are doing enough to disclose the “reasonably possible” category of losses. Officials in the agency’s corporation finance division are reviewing banks’ regular filings to determine whether shareholders have been given fair warning of the mounting future liabilities, according to people familiar with the matter.

One can have a teeny bit of sympathy for the banks. Structured credit and chain of title litigation are cutting edge areas of the law. We are in a better position than the banks to be candid about what is afoot, and even so, we’ve gotten a few calls wrong. But it’s also true that many of the key elements of the law are being sorted out in court, and certain issues are too early to call.

Be sure to check out the rest here…

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