Disclosure Universes and Modes of Information: Banks, Innovation, and Divergent Regulatory Quests

Abstract

In 2013, a new system for mandatory public disclosure came into effect, the first since the creation of the Securities and Exchange Commission (SEC) in 1934. Today, major banks and certain other entities must make disclosures mandated not only by the SEC, but also by a new system developed by the Federal Reserve Board and other U.S. bank regulators acting in the shadow of the Basel Committee on Banking Supervision and the Dodd-Frank Act. Already, this parallel system, which stemmed in large part from a belief that disclosures as to the complex risks flowing from modern financial innovation were manifestly inadequate, dwarfs the SEC system in sophistication as to the quantitative aspects of market risk and the impact of economic stress. The overall morphology of mandatory public information has changed in elemental ways, spanning two parallel regulatory universes with divergent ends and means. The SEC system is directed at the interests of investors and market efficiency, while the bank regulator system is directed at the well-being of the entities themselves and the stability of the financial system. The regulatory means diverge as well, not only as to specific risk-related disclosures, but even as to overarching concepts like "materiality" and the availability of private enforcement. This Article is the first academic work to consider the new morphology of public information.