Capital Markets

Big Banks Are Solid, Says SEC’s Cox

Despite losing billions of dollars in subprime-mortgage investments, the top financial firms have plenty of liquidity, the chairman says.
Stephen TaubFebruary 1, 2008

Securities and Exchange Commission chairman Christopher Cox offered some encouraging words on Friday for the jittery credit markets.

The SEC is comfortable with the level of liquidity at the five largest U.S. investment banks, Cox told reporters after receiving a leadership award from the European-American Business Council, Reuters reported. He said his staff is in constant contact with Morgan Stanley, Lehman Brothers Holdings, Bear Stearns Cos., Merrill Lynch & Co., and Goldman Sachs.

“The firms have all been taking steps to increase their liquidity,” Cox reportedly said. “We are very comfortable that their positions are strong.”

Cox’s comments came after a number of large financial firms that lost billions in the subprime-mortgage crisis sold minority stakes to foreign entities, and after the Federal Reserve cut short-term interest rates by 125 basis points in January in a bid to boost liquidity.

In another matter, Cox told reporters the SEC was not involved in a government plan to bail out the bond insurers, which are regulated by states, not federal agencies. The bond-insurance industry is struggling with mounting losses and capital shortfalls, and is in danger of losing top credit ratings that such insurers as MBIA and Ambac depend on to function normally, Reuters noted. Cox did say the SEC is “focused on [the] current and potential impact of changes in the health of the monoline insurers,” but he did not elaborate.

Cox said he met with the President’s Working Group on Financial Markets on Thursday and is in daily contact with the group’s members, which include Treasury Secretary Henry Paulson.