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US regulator says flawed oversight fed financial crisis
2008-09-27
WASHINGTON (AFP) - The head of the US financial regulator SEC has blamed a voluntary monitoring program for major investment banks as a cause of the global financial crisis and said he was shutting the program down. "The last six months have made it abundantly clear that voluntary regulation does not work," the chairman of the Securities and Exchange Commission, Christopher Cox, said in a statement released Friday. Cox said the Congress had created a "significant regulatory gap" by failing to grant authority to the SEC or other government agencies to oversee large investment banks, which took on vast amounts of toxic assets from failed home mortgages. Without binding legal authority to require investment banks to report capital and liquidity levels, the SEC tried to address the problem by creating a voluntary program, according to Cox. The voluntary monitoring program "was fundamentally flawed from the beginning, because investment banks could opt in or out of supervision voluntarily," Cox said. The announcement coincided with a report from the SEC's inspector general that found fault with the agency's monitoring of the investment bank Bear Stearns before it collapsed in March. Cox said he agreed with the inspector general's findings and argued it illustrated the lack of binding regulation over the investment banks. The SEC chairman's decision comes after the five big Wall Street investment firms have disappeared in the most serious US financial crisis since the Great Depression. Bear Stearns -- under US government pressure -- was forced into a merger with JP Morgan Chase and last month, Lehman Brothers went into bankruptcy. Merrill Lynch was bought by Bank of America, while Goldman Sachs and Morgan Stanley were reorganized as bank holding companies under much stricter rules. Much of the SEC's regulatory authority will be taken over by the Federal Reserve, but the statement said the commission would renew its focus on the brokerage units of investment banks.
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