May 7 (Bloomberg) -- The U.S. Securities and Exchange Commission will require investment banks to disclose their capital and liquidity levels after the agency was criticized for regulatory failings in the wake of the Bear Stearns Cos. collapse. Wall Street firms declined on the news.

``One of the lessons learned from the Bear Stearns experience is that in a crisis of confidence, there is great need for reliable, current information about capital and liquidity,'' SEC Chairman Christopher Cox told reporters in Washington today. ``Making that information public can certainly help.''

The SEC is re-evaluating its oversight of securities firms after the Federal Reserve had to help rescue New York-based Bear Stearns in March to prevent a market panic amid a worldwide credit contraction. Concern that Bear Stearns was running short of cash prompted customers and lenders to desert the firm in March, forcing it to accept a takeover by JPMorgan Chase & Co.

Data on capital and liquidity will be required this year ``in terms that the market can readily understand and digest,'' Cox said in a speech today before the Securities Traders Association in Washington. The SEC already collects much of this information without giving it to the public, he said.

The five biggest Wall Street firms had their largest share- price declines in at least a month. Lehman Brothers Holdings Inc., the fourth-largest U.S. securities firm, led the way, losing $2.67, or 5.8 percent, to $43.64 as of 4:31 p.m. in New York Stock Exchange trading.

Merrill Lynch & Co., the third-largest U.S. securities firm, fell $2.87, or 5.6 percent, to $48.48. Bear Stearns slipped 57 cents, or 5.3 percent, to $10.27. Among larger rivals, Morgan Stanley declined $1.84 to $47.21, and Goldman Sachs Group Inc. lost $7.85 to $189.76.

Senate Scrutiny

The SEC's supervision of securities firms and the adequacy of its resources for monitoring them drew scrutiny today from the U.S. Senate at two hearings. Senator Charles Schumer, a New York Democrat, said the SEC oversight approach is ``weak by nature.''

``There should have been some regulator that came in sooner and said, `You've got to raise capital, you've got to reduce your exposure to mortgages,''' Schumer said, referring to Bear Stearns.

The SEC is pushing for more disclosure, urging investment banks to raise capital and asking firms to extend the terms of their borrowing agreements. The regulator plans to ``phase in additional disclosure related to concentration of exposures,'' Cox told reporters.

Submitting to Oversight

Bear Stearns, Goldman Sachs, Lehman Brothers, Merrill Lynch and Morgan Stanley voluntarily submit to SEC scrutiny of their risk-taking and capital levels. The SEC seeks to ensure that firms have enough funds to meet expected obligations for at least a year during periods of market stress.

Senator Jack Reed, the Rhode Island Democrat who heads the Senate subcommittee on securities, insurance and investment, said the SEC's monitoring didn't ``adequately measure the risk of new products'' such as securitized loans that investments banks held and were sold to investors.

The SEC wants to ``step up capital and liquidity requirements for these firms,'' Erik Sirri, who heads the agency's division of trading and markets, said in Senate testimony today. Congress would improve the agency's oversight by making it mandatory through legislation, he said.

Sharing Information

The SEC is preparing a ``memorandum of understanding'' for sharing information about the health of investment banks with the Fed. The agency also intends to increase the number of staff responsible for monitoring investment banks to 40 people from 25, he said.

``This move by the SEC is very helpful,'' said John Kornitzer, chief investment officer of Kornitzer Capital Management, which oversees $5 billion. ``Covering up this kind of dirt was never a good idea.''

``We need all the information out there so we can all make an informed decision when we buy,'' he said in a phone interview. His firm is based in Shawnee Mission, Kansas.

Merrill Lynch owns a passive, 20 percent stake in Bloomberg LP, the parent of Bloomberg News.

To contact the reporters on this story: Jesse Westbrook in Washington at jwestbrook1@bloomberg.net; Edgar Ortega in New York at ebarrales@bloomberg.net.

Last Updated: May 7, 2008 16:44 EDT