SEC Did Not Foresee Bear Cash Crisis
The collapse and forced sale of Wall Street giant Bear Stearns exposed the dangerous interconectedness of financial markets and the faulty oversight now in place, U.S. regulators said in prepared congressional testimony on Thursday.
Bear Stearns collapse came in only a matter of days and despite the firm having more than enough capital to meet existing tests of soundness, regulators were to tell the Senate Banking Committee, according to an advance text of the remark obtained by Reuters.
"Up to and including the time of its agreement to be acquired by JP Morgan Chase, Bear Stearns had a capital cushion well above what is required to meet the Basel standards," Chairman Christopher Cox said in prepared remarks to the Senate Banking Committee.
The Basel capital framework sets reserve standards for the world's largest banks and Cox has said those guidelines may need to be tightened.
Despite those strong capital reserves, regulators said they worked together to facilitate a JP Morgan Chase buyout of Bear Stearns to save financial markets from turmoil.
"Our focus was not on this specific institution, but on the more strategic concern of the implications of a bankruptcy," Treasury Undersecretary for Domestic Finance Robert Steel said in remarks prepared for delivery to the commmittee on Thursday.
"The failure of a firm that was connected to so many corners of our markets would have caused financial disruptions beyond Wall Street."