In January, U.S. banks received a Securities and Exchange Commission memo asking them to make public disclosures about their exposure to Europe’s challenged countries more transparent. Not all of them fully complied in the first quarter and now this may come to haunt them with the declining European financial conditions.

The agency asked that the banks’ financial filings include distinct descriptions of loans and trading positions pertinent to Europe. One of the main goals from the details was to enable outsiders to really have an opportunity to see what’s inside them. Problems arise when a bank, for example, may say it has an Italian trading position of $3 billion, but in reality it’s net figure that included difficult to view offsetting items.

Without these offsets, the “gross” total may really be higher. In the SEC’s January memo, the agency asked the group to reveal gross figures, and then note the offsetting items. At issue, is that in a crisis, a bank could have difficulty collecting all the offsets, so its valid exposure may not necessarily be its net exposure, reported The New York Times.

At the time, JPMorgan’s CEO Jamie Dimon’s comments were a solid example of the lack of transparency made by the big banks and their exposure to Europe.

While seen as a “guidance” it wasn’t something the banks were required to adopt, reported The New York Times. And some have continued to do so with even less open approaches. This may not bode well for investors as they watch European leaders trying to find solutions for the troubled the region’s challenges.

Here’s one banks that chose not to comply.

Morgan Stanley (NYSE:MS) saw its share price crushed last fall from investor worries about European exposure. In the bank’s first-quarter filing, it disclosed a “net counterparty exposure,” item, which is a collateralized short-term loans and derivatives that are not exchange-traded. This included $1.8 billion for Greece, Italy, Ireland, Spain and Portugal, and France’s $2.98 billion.

For the bank, “net counterparty exposure” is the biggest part in its European exposure; it may be even larger on a gross basis. A footnote said that “takes into consideration an undisclosed amount of collateral, the cash or assets that clients post with Morgan Stanley” according to The New York Times.

Should the banks include collateral as an offset, the S.E.C. could request they quantify it in a footnote. No, Morgan Stanley failed to do so but Bank of America (NYSE:BAC), JPMorgan Chase (NYSE:JPM), Goldman Sachs (NYSE:GS) and Citigroup (NYSE:C) did, enabling outsiders to add it back.

But Bank of America has a different story for its exposure to Europe. It didn’t do so and its $1.7 billion total for an item named  “securities/other investments” declines from an undisclosed sum of hedges and short positions.

Jerome F. Dubrowski, a Bank of America spokesman, said to The New York Times, “We believe that our disclosure is consistent with the guidance provided by the S.E.C. Each company will do this a little differently, but we believe this disclosure meets the criteria established by the S.E.C. If we are asked to provide additional information, we will of course comply.”

The banks have argued that with offsetting items such as collateral and hedges, they should not be ignored because they do have reliable protection, especially in some stress situations.

On the flip side, if European banks have problems, hedges may not work as they won’t honor any payments owed on American bank trades for a hedge. Morgan Stanley understands this and doesn’t include hedges with banks in problem countries for its overall total in  European hedges.

But take a look at this challenge for the banks and their European defenses: the break up of the euro.

Keep in mind, many banks’ hedges are credit default swaps who have a euro payout. What happens to the swap’s value if its currency payout was gone or moved into a new currency? Around 35 percent (or 8 trillion euros) of all of credit default swaps have euro denominations, according to the Depository Trust and Clearing Corporation.

In the end, collateral may have less value than initially hoped as it comes in the euro or European government bonds. Should things further decline in Europe, some banks may need to reach out to more countries, such as France, in their European disclosures. Currently, Bank of America, Goldman and JPMorgan don’t include the country in their data but they do include some in other parts of its filings.The problem from the thin disclosures is their lack of information about hedges against their French exposure.