WASHINGTON — The Securities and Exchange Commission on Friday ended a voluntary regulatory program that failed to identify problems with leading broker-dealers such as Bear Stearns before it became too late.

The agency's inspector general issued a report criticizing the Consolidated Supervised Entities program for poor oversight of Bear Stearns and of broker-deal risk assessments. The program was created in 2004 as a voluntary regulatory mechanism for global investment banking conglomerates lacking legal supervision because of their structure.

"The last six months have made it abundantly clear that voluntary regulation does not work," SEC Chairman Christopher Cox said.

The SEC's inspector general's report suggested the division overseeing the program should have had better oversight of firms such as Bear Stearns and that its inadequacies "hinder the Commission's ability to foresee or respond to weaknesses in the financial markets."

The report cited several problems, including an inability of the SEC division overseeing the program to enforce compliance with its own policies. Additionally, it accused the division of not providing timely review of information submitted to it and of an inability to function in accordance to its own procedural rules.

The consolidated supervised entities program was intended to overcome a regulatory gap created when Congress passed the Gramm-Leach-Bliley Act in 1999, which did not require global investment bank holding companies to report capital, maintain liquidity or submit to leverage requirements.

Cox maintains the program has been "fundamentally flawed from the beginning because investment bank holding companies could withdraw from this voluntary supervision at their discretion."

Several of the major investment banks the program was intended to monitor have become victims of the financial crisis gripping the U.S.

Lehman Brothers Holdings Inc. was forced to file for bankruptcy. Bear Stearns nearly collapsed before JPMorgan Chase & Co. stepped in to rescue it with the backing of the federal government. Merrill Lynch & Co. agreed to sell itself to Bank of America, and Goldman Sachs and Morgan Stanley announced they would become bank holding companies.

Sen. Charles Grassley, R-Iowa, earlier in the week sent a letter to Cox requesting details on how the SEC used the Consolidated Supervised Entities program to safeguard the stability of financial markets.

"In light of the collapse or reorganization of our nation's five largest investment banks and the related financial crisis we now face, the Securities and Exchange Commission needs to account to Congress and the American people for the manner in which it conducted oversight of these institutions," the letter said.

Going forward, Cox said the broker-dealer subsidiaries of bank-holding companies Goldman and Morgan would be monitored by the SEC through an information sharing agreement with the Federal Reserve. The Fed has broad powers to supervise the holding companies.

"The information from the bank holding company level that the SEC will continue to receive under the MOU will strengthen our ability to protect the customers of the broker-dealers and the integrity of the broker-dealer firms," he said, referring to a memorandum of understanding announced in July.

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