The Securities and Exchange Commission’s recent crackdown on earnings management, reported widely several weeks ago, may be little more than a warning, but it may also be ammunition.

The agency sent a letter to select bank holding companies last month telling them that it might investigate their banks’ loan-loss reserves.

The SEC has let it be known that it is not happy with the generous loan-loss reserves banks have set aside for a rainy day, viewing them as a form of earnings management rather than healthy prudence, and so against generally accepted accounting principles (GAAP). The conundrum this creates for banks is that the banking regulators want to see the strong allowances. The situation came to a head this fall when SunTrust was required to restate earnings to the tune of several million dollars.

The letter, which was addressed to a generic "Chief Financial Officer," advised that the banks’ 1998 annual reports "may be selected for review." The language was so seemingly casual that some analysts saw it as an almost friendly admonition to follow GAAP.

"So it’s not a ‘we’ve looked at your charges and disagree with them’ (letter); it’s a kind of a reminder letter. I think long term this is just a friendly reminder, ‘The accounting rules are there, follow them.’ This is just pulling the boys in," said Hal Schroeder, senior bank analyst at Keefe Bruyette & Woods.

Other bank watchers were not so sanguine.

"This is like a comment letter in advance," said Michael Joseph, partner at Ernst & Young. "This could be ammunition for the SEC for those they feel haven’t complied, (the agency can say) ‘We told you already.’ These are things the SEC is looking to see in this year’s annual reports and I will expect banks to be criticized if they don’t comply."

Banks must file annual reports by March.