The SEC wants to make it a little harder for public companies to disguise their level of indebtedness. In a vote taken on Friday, regulators took aim at what's called "window dressing." That's the practice of artificially trimming debt at the end of each quarter to make the company's financial statements appear a little stronger.
Banks are especially notorious for using this tactic; Lehman Brothers in particular had famously hidden its true levels of debt before its collapse in September 2008. The SEC is hoping that by changing the rules, investors will have better information about a company's health, and that the bottom line reported each quarter will be a little bit closer to reality. The new rule would force the affected companies to publicly disclose their levels of debt on a daily basis, rather than just at the end of the quarter.
At this point, the rules have simply been proposed. The next step is for the SEC to listen to public comments for the next 60 days. Only after that - perhaps in the next few months - would the regulation take effect. We'll keep you posted.
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