By Neil Irwin and Zachary A. Goldfarb Washington Post Staff Writer
Thursday, March 18, 2010
A week after the disclosure that Lehman Brothers used an unconventional accounting technique to make its balance sheet look stronger than it was in the months before its collapse, lawmakers Wednesday attacked the federal regulators who failed to detect and halt the practice.
The head of the Securities and Exchange Commission accepted primary responsibility on behalf of her agency for shortcomings in its oversight of Lehman at a congressional hearing. And at a separate hearing, Federal Reserve Chairman Ben S. Bernanke faced tough questions on why Fed examiners monitoring Lehman in spring 2008 failed to catch the accounting tactics, which helped the bank hide $50 billion in liabilities from its quarterly reports.
The scrutiny from lawmakers comes as both agencies try to fend off attacks in the debate over how to remake the nation’s system of financial regulation and shows how the Fed’s extraordinary efforts to shore up the economy have exposed it to wider criticism of its performance.
The SEC oversaw Lehman Brothers and other investment banks under a voluntary regulatory program that the agency’s chairman, Mary Schapiro, said was “terribly flawed in design and execution.” Testifying before the House Appropriations Committee, she blamed the agency’s failure on “our enforcement and disclosure mentality,” which focused more on whether a firm was adhering to securities law than whether it was financially sound. She said the agency lacked the staff and skills to do the job.