A House panel will hold a hearing exploring regulatory failures leading up to the collapse of Lehman Brothers, after a court-appointed examiner report found elaborate accounting tricks that helped to hide the investment bank's insolvency.
Democratic Representative Mary Jo Kilroy and Republican Representative Spencer Bachus requested the hearings in separate letters on Tuesday, with Bachus saying the report raised questions about whether the Federal Reserve's supervisory role should be expanded.
House Financial Services Committee Chairman Barney Frank has agreed to hold a hearing but has not yet scheduled it, a spokesman for Kilroy said on Wednesday.
Either the SEC and the New York Federal Reserve failed to discover the ongoing accounting fraud at Lehman, or they turned a blind eye to the ongoing fraud, Bachus said in his letter.
Kilroy, in her letter, said lawmakers needed to explore how regulators allowed the accounting tricks to occur.
She also said the hearing should examine whether former Lehman executive Matthew Lee was ousted from the company for flagging the accounting practice, and whether other financial firms were using it for their books.
The 2,200-page Lehman report, prepared by a court-appointed examiner, found that the investment banking firm used a gimmick, known as Repo 105, for the sole purpose of manipulating its books, contributing to its demise.
The report also found that Lehman had been insolvent for weeks before it filed for bankruptcy in September 2008.
Bachus said the hearing would be especially important given legislative proposals to expand the Fed's regulatory powers.
Under legislative packages in the House and Senate that represent the most extensive rewriting of financial market rules since the 1930s, the Fed would gain greater ability to supervise the largest and most complex financial firms.
Later on Wednesday, the House Financial Services Committee is scheduled to hold a hearing to examine the link between the Fed's banking supervision responsibilities and its monetary policy function.
Bachus said lawmakers should examine the adequacy of the monitoring of Lehman by the New York Fed and the U.S. Securities and Exchange Commission after the collapse of investment bank Bear Stearns in March 2008.
He said the hearing should include testimony from Treasury Secretary Timothy Geithner, former SEC Chairman Christopher Cox, and former Lehman Chief Executive Dick Fuld.
(Reporting by Karey Wutkowski; editing by John Wallace and Ted Kerr)