Congress looks at SEC oversight of Wall St banks

Following the near-collapse in March of Bear Stearns Cos., which had been the fifth-largest U.S. investment bank, several lawmakers criticized the market watchdog agency for what they said was its failure to detect warning signs of the meltdown.

The Federal Reserve arranged a $30 billion rescue of the firm with a loan for its acquisition by rival JP Morgan Chase & Co. -a move that Fed and Bush administration officials said was needed to avert a disaster for the U.S. economy and the global financial system.

Bear Stearns was one of five major Wall Street banks whose cash positions and balance sheets were monitored by SEC examiners after the subprime mortgage crisis erupted last year. The SEC monitors the financial stability of investment banks but has limited authority over them. The other four banks are Goldman Sachs Group, Lehman Brothers, Merrill Lynch and Morgan Stanley.

Commercial banks, by comparison, are more tightly supervised by their federal regulators such as the Federal Reserve and the Federal Deposit Insurance Corp.

One of the congressional critics of the SEC's actions regarding Bear Stearns, Sen. Jack Reed, D-R.I., is holding a hearing on the subject Wednesday morning in the Senate Banking subcommittee he heads. Among those testifying are former SEC chairmen Arthur Levitt and David Ruder, and Erik Sirri, the current director of the agency's division that oversees investment banks.

Lawmakers may consider a proposal that would subject investment banks to the same, stricter, requirements for the amount of capital held against risk as commercial banks. Regulators such as the SEC and the Federal Reserve would be empowered to intervene -possibly to shut them down -when investment banks failed to meet the requirements.

The SEC itself may require big investment banks to maintain bigger cash cushions in times of market disruption, agency Chairman Christopher Cox has said.