The US Securities and Exchange Commission (SEC) is scrutinizing the liquidity of investment banks it supervises and is planning to require the top Wall Street firms to publicly disclose their current liquidity and capital positions, SEC officials said on Wednesday. Attention has been on funding at the biggest US investment banks since March, when Bear Stearns Cos Inc nearly collapsed after a sharp decline in its liquidity. “We are discussing with (investment banks') senior management their longer-term funding plans, including plans for raising new capital by accessing the equity and long-term debt markets,” Erik Sirri, the SEC's director of trading and markets, said in prepared testimony to the Senate banking subcommittee on securities and investment. The SEC monitors investment banks Morgan Stanley, Lehman Brothers Holdings Inc, Merrill Lynch & Co Inc, Goldman Sachs Group Inc and Bear Stearns for liquidity and capital levels as part of its consolidated supervised entities (CSE) program to enable the SEC to respond quickly to any financial or operational weakness in the companies. SEC Chairman Christopher Cox said at a securities conference on Wednesday that the SEC is not waiting for new internationally accepted standards for capital and liquidity and has strengthened the liquidity requirements for the CSE firms. There will be “more disclosure of actual capital and liquidity positions of the CSE firms in terms that the market can readily understand and digest,” Cox said. Cox told reporters after the conference he is not sure how often the CSE firms would have to publicly report such information. Senior lawmakers have called for stricter regulation of investment banks since they were given emergency access to the Federal Reserve's discount borrowing window in March, as the credit crisis deepened. The Federal Reserve took the unprecedented step of opening its discount borrowing window to investment banks after the Bear Stearns crisis. Bear Stearns, once the fifth-largest US investment bank, is being acquired by JPMorgan Chase & Co. Sirri said the SEC was increasing the companies' liquidity level requirements and pushing for diversified funding sources. He also said the SEC and Federal Reserve Board were developing a formal memorandum of understanding that would lay out the scope and mechanism for information sharing between those two agencies. The SEC has been criticized for failing to prevent the Bear Stearns crisis. There has also been suggestions that the Fed should take over supervising investment banks. Cox urged Congress to pass legislation to give the SEC or “another regulator” the explicit mandate to supervise investment banks. “The statutory no-man's land that continues ... should not be tolerated indefinitely,” he said.
