The financial market has been bleeding badly since last summer when the sub-prime led credit crisis struck the investment banking sector, bringing the fifth investment bank Bear Stearns to demise. Among mounting worries that big-name banks are going to post more massive write-downs, the SEC finally comes to the front, playing hero.
SEC gets on the move
SEC required all the remaining investment bank behemoths to reveal more company figures in addition to the regular disclosure of company liquidities. SEC raises the threshold for information reveal, forcing all banks to report their borrowing situation, to see if the company’s business relies too much on leverage.
Cash is the king
Since the market is in bearish mood at the moment, investors are more concerned than ever before with the capital adequacy, equity and assets of the companies. The current situation looks worrisome. The four big banks all build up their business and growth on heavy borrowings. Lehman Brothers has two-thirds of its debt based on short-term borrowing, which is extremely volatile when the overall credit in the market is strained.
Bear Stearns woes
The sudden topple of Bear Stearns early this year is till haunting the market and investors; the company was the first casualty in Wall Street to be fatally hit by the sudden clamp of liquidity. Since then the SEC have been watching closely on the situation, in case that more banks will follow the trend.
‘It is never too late’, as the old saying goes. The rigorous standards set up by SEC are considered a market stabilizer. It might be painful in the beginning, but the banks will find themselves the ultimate beneficiaries of the move, because their future returns will be based on a more solid and safer cash-backed foundation.
