Securities and Exchange Commission Chairman Mary Schapiro, who also testified, said her agency has asked 19 of the nation's largest banks about the practice. Bernanke, who attended the hearing today, said he wasn't aware that Lehman used Repo 105 but the Fed wasn't the investment bank's primary supervisor although it did provide the firm with funds to stop its failure.
Lehman Brothers filed the largest bankruptcy in U.S. history in September 2008, sending Federal Reserve Chairman Ben Bernanke and then Treasury Secretary Henry Paulson scurrying up to the Capitol late one evening saying the economy was in dire straits.
Several weeks later, President George W. Bush signed the Troubled Asset Relief Program, providing $700 billion to stabilize a slew of failing Wall Street firms.
"Any strategy that relies on market discipline to compensate for weak regulation and then leaves it to the government to clean up the mess is a strategy for disaster," Geithner told the panel.