A few years ago a fast food chain ran a terrific ad campaign touting its burgers. A little old lady stood in front of the counter in a competitor's store looking at an enormous bun housing a waif of a burger and growled, "Where's the beef?"

That refrain rings in my head every time I think about the SEC's campaign to regulate banks' loan-loss reserves. The SEC contends that banks are using their loan-loss reserves as "cookie jars" to store earnings during good times so they might be used to cover losses in bad times.

Where's the beef? Isn't that precisely what reserves are intended to do? Aren't they supposed to be created when lots of new loans are being booked, to help cover the inevitable losses when the economy heads south?

No one, crooks aside, intentionally books a bad loan. Yet we know from experience that a percentage of "good" loans will go bad-particularly when the economy slumps.

If a bank fails to set aside sufficient reserves during good times, it's overstating earnings and violating sound banking principles. Bank analysts, the SEC, and bank regulators would be amply justified in taking the bank to task.

There's no incentive whatsoever for banks to create excessive loan-loss reserves, particularly in this era of massive consolidation. Banks live and die by their price earnings ratio and market capitalization. Every dollar of unnecessary loan-loss provision reduces market capitalization by a significant multiple of that dollar and makes it more likely the bank will be acquired by a more aggressive competitor.

There's no good time to encourage banks to under-reserve for loan losses, but the SEC has picked a particularly dangerous time for its crusade. We're in the longest peacetime economic expansion in history. Historically, credit standards deteriorate as an economic expansion progresses.

Unless we have somehow managed to repeal the business cycle, a recession will hit the U.S. one of these days. When it does, loan losses will escalate. That's particularly troubling in view of the already high level of loan losses at banks.

During the 1960s, net loan chargeoffs by banks never exceeded 0.2% of loans. The turbulent economy, lax credit standards, and the more intense competitive environment of the 1970s led to a notable increase in loan chargeoffs, reaching a peak of 0.6% in 1975.

The 1980s brought even more competition, and banks lost many of their best customers to securities firms and other intermediaries. The risk profile of bank customers increased and loan losses skyrocketed, peaking at 1.6% of loans in 1991.

As the economy recovered, beginning in 1992, net chargeoffs declined, falling to a low of 0.5% in 1995.

Then something quite troubling occurred. Net loan chargeoffs at banks increased in 1996, 1997, and 1998-in the midst of a very strong economic expansion! The figure for 1998 was 0.67% of loans-over three times the highest year during the 1960s and higher than at the peak of the 1970s real estate debacle. Moreover, noncurrent loans increased in 1998 for the first time since 1990.

The signs point to trouble brewing in bank loan portfolios. Competition is heating up, and bank regulators are very anxious about deteriorating credit standards.

Along comes the SEC, at this critical juncture, complaining about excessive loan-loss reserves. That's like telling the captain of a ship that the best way to get through a sea of icebergs is to cast aside the lifeboats and go full speed ahead.

The SEC apparently believes that reserves can be calculated with mathematical certainty-that there's no room for judgment by seasoned bankers and their regulators.

The SEC's policy stance and timing couldn't be more inappropriate. The SEC has no legitimate beef with banks that are exercising judgment and caution during a period in which those qualities are as important as they are rare.

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