|  | | 2008 News and Press Releases | | |
HEADLINE NEWS:
What We Learned From Bear
Liz Moyer
Forbes.com. April 4, 2008
_________________________________________________________________________
EXCERPT: Bear Stearns did not die alone. Regulators were watching closely. They had pushed the bank to raise capital levels and liquidity, and the firm met those conditions even up to its collapse. But the SEC and others had never considered what might happen if the bank was unable to borrow from trading partners, even using loans secured by high-quality assets. And that's exactly what happened to Bear Stearns the week of March 10. Amid a sea of rumors, firms stopped trusting the Bear's ability to repay, and the bank collapsed. In the wake of the Bear Stearns blow-up, rule makers will put renewed emphasis on the cash positions of major financial institutions--a traditional gauge of a bank's ability to weather crisis. But the testimony of government officials Thursday made clear that even a firm meeting regulatory standards for capital and liquidity can fall prey to a collapse in confidence, making it virtually impossible to raise capital to stop the damage fast enough to matter. Bear's inability to access secured credit was "a revelation," SEC Chairman Christopher Cox told the Senate Banking Committee Thursday. Regulators had focused on firms' ability to operate without unsecured credit for as much as one year, and it was basically assumed that secured credit would always be available, even if at higher rates--a focus that was, in retrospect, inadequate to handle a crisis, Cox said. "The Bear Stearns experience has challenged the measurement of liquidity in every regulatory approach." Cox said the SEC and other regulators are working to build confidence and prevent another Bear. Representatives of the Fed had already been dispatched to the "big five" Wall Street banks, making sure they increase their liquidity and lengthen the terms of their financing so they can weather the credit crisis. |
|
|
