WASHINGTON — The chairwoman of the Securities and Exchange Commission on Tuesday pledged better oversight of the nation’s largest banks after criticism that the agency failed to spot accounting tricks at investment bank Lehman Brothers before it collapsed.
Chairwoman Mary Schapiro told a congressional panel that the agency has sent letters to 19 banks seeking information about whether they are using accounting tricks that a bankruptcy examiner said masked the bank’s precarious financial condition. Lehman failed in September 2008 in the largest corporate bankruptcy in U.S. history.
Schapiro, who was not with the SEC at the time, said the agency is scrutinizing Lehman’s use of the accounting move, known as Repo 105, that allowed it to mask its weakness.
Her testimony followed widespread criticism that the SEC failed to properly monitor Wall Street ahead of the Great Recession and came after the agency filed civil fraud charges Friday against Goldman Sachs.
Tuesday’s hearing examining what led to Lehman’s meltdown drew lawmakers into a squabble over the Obama administration’s push for financial regulatory reform. Republicans pointed to the records of the SEC and other agencies as evidence that more regulation won’t prevent future meltdowns.
The hearing looked at the bankruptcy examiner’s report, which said the firm masked $50 billion in debt.
Richard Fuld, Lehman’s former chief executive, said he has “absolutely no recollection whatsoever” of any documents related to the Repo 105 accounting maneuver. After reviewing the transactions, he said the firm complied with accounting standards.
Two lawmakers testified at the hearing that Lehman’s meltdown cost school districts, local governments and hospitals millions, forcing them to make cutbacks.
“These were school districts and local governments that made investments that they believed were conservative,” said Rep. Ed Perl mutter, D-Colo. “They trusted that federal regulators were keeping a watchful eye on companies like Leh man Brothers.”
