Open Up Our Financial Watchdogs

With future taxpayer bailouts of financial entities likely, there is no reason for the SEC to hide information about the financial enterprises it regulates.

A bill limiting the Securities and Exchange Commission’s freedom of information act exemption just passed the Senate overwhelmingly and seems ready for an equally easy passage in the House. As much as some Wall Street titans may whine about it, the change makes sense.

The broadening of the ability to obtain information is necessary because, under the recently signed financial reform law, the SEC will gain powers to collect a wider range of information than it does today and, to protect corporate proprietary information, the law gave the SEC a broader exemption.  Plenty of companies (including one household name I met with yesterday) are exercised about the bill, sure that it will result in the surrender of their secrets to competitors. I don’t think they should worry for at least three reasons.

First, most of the information likely to be available through the SEC is already open to the public. Large amounts of information are already subject to federal and state freedom of information laws and sit in the files of banking regulators, state insurance departments, the Commodities and Futures Trading Commission and dozens of other regulators.  Companies like Bloomberg, SNL, and A.M. Best make money mining the data that’s already there.  The SEC itself already requires elaborate public disclosures for any company that chooses to go public.  There probably isn’t much new information in the SEC’s files.

Second, if truly proprietary information that wasn’t already available does leak out, it’s unlikely to give anybody a competitive advantage; a company that gains information about a competitor is going to also have to give up the same information about itself.  A rough information parity should continue.

Finally, public disclosure of more information will, on balance, help the finance industry. Far too many financial companies make their own work needlessly opaque.  There’s no good national or homeland security reason to withhold information the government collects about financial enterprises that it regulates. Future taxpayer bailouts of some enterprises are inevitable and the public should have the right to know about the types of liabilities they may be on the hook for. Given that the financial reform bill, on balance, expands the types of entities eligible for bailouts, taxpayers’ interest in this issue should be high.

The government should open the SEC’s records without undo dely.