SEC to mandate fuller disclosure by investment banks
WASHINGTON - The Securities and Exchange Commission will require investment banks to disclose their capital and liquidity levels after the agency was criticized for regulatory failings in the wake of the Bear Stearns Cos. collapse. Stocks of Wall Street firms declined on the news.
"One of the lessons learned from the Bear Stearns experience is that in a crisis of confidence, there is great need for reliable, current information about capital and liquidity," SEC chairman Christopher Cox said yesterday. "Making that information public can certainly help."
The SEC is reevaluating its oversight of securities firms after the Federal Reserve had to help rescue New York-based Bear Stearns in March to prevent a market panic amid a worldwide credit contraction. Concern that Bear Stearns was running short of cash prompted customers and lenders to desert the firm in March, forcing it to accept a takeover by JPMorgan Chase & Co.
Data on capital and liquidity will be required this year "in terms that the market can readily understand and digest," Cox said in a speech before the Securities Traders Association in Washington. The SEC already collects much of this information without giving it to the public, he said.
The five biggest Wall Street firms had their largest share-price declines in at least a month. Lehman Brothers Holdings Inc., the fourth-largest US securities firm, led the way, losing $2.67, or 5.8 percent, to $43.64.
Merrill Lynch & Co., the third-largest US securities firm, fell $2.87, or 5.6 percent, to $48.48. Bear Stearns slipped 57 cents, or 5.3 percent, to $10.27. Among larger rivals, Morgan Stanley declined $1.84, or 3.8 percent, to $47.21, and Goldman Sachs Group Inc. lost $7.85, or 4 percent, to $189.76.
The SEC's supervision of securities firms and the adequacy of its resources for monitoring them drew scrutiny yesterday from the US Senate at two hearings. Senator Charles Schumer, a New York Democrat, said the SEC oversight approach is "weak by nature."
"There should have been some regulator that came in sooner and said, 'You've got to raise capital, you've got to reduce your exposure to mortgages,' " Schumer said, referring to Bear Stearns.
The SEC is pushing for more disclosure, urging investment banks to raise capital and asking firms to extend the terms of their borrowing agreements. The regulator plans to "phase in additional disclosure related to concentration of exposures," Cox said.
Bear Stearns, Goldman Sachs, Lehman Brothers, Merrill Lynch, and Morgan Stanley voluntarily submit to SEC scrutiny of their risk-taking and capital levels.
