SEC Reacts In Hopes Of Preventing Another Lehman Catastrophe

Two years ago, on September 15, 2010, the 158 year old Lehman Brothers announced its bankruptcy that stunned Wall Street and fueled the financial crisis in 2008. An accounting strategy used by the firm effectively lowered or removed short term debt from the balance sheet at the end of the quarter prior to reporting to the public and then restated it after the beginning of the next quarter. This same strategy, called “Repo 105” or “Window Dressing”, was used by 18 large banks in each of the last six quarters reducing their short term debt by some 42%, according to a Wall Street Journal investigative report. In hopes of preventing another financial catastrophe, the SEC in a unanimous vote agreed to establish rules requiring full disclosure of all debt at the end of the quarter as well as the average and maximum debt during the quarter. SEC Chairman, Mary Shapiro, called the information “critical to the assessing a company’s prospects for the future, and even the likelihood of its survival. This principle was borne out during the recent financial crisis.”

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