P. M. BRIEFING : SEC Chief Calls Markets Strong

The slide of Drexel Burnham Lambert Inc. into bankruptcy court is not an indication that U.S. securities markets are unsound, the chairman of the Securities and Exchange Commission said today.

“Drexel was uniquely concentrated among large securities firms in high-yield securities, and that concentration proved to be fatal when these securities became unmarketable and unpledgeable,” Chairman Richard C. Breeden told a Senate hearing.

Drexel’s insolvency “should not be taken as an indication that U.S. securities markets, or other major participants in those markets, are financially unsound,” he testified before the Senate Banking, Housing and Urban Affairs Committee.

Breeden noted that Drexel’s $28-billion business has been reduced by about 75% since its parent company, Drexel Burnham Lambert Group, filed for bankruptcy protection, “and the public was not called upon to pay the creditors of Drexel’s unregulated operations.”

He called for passage of a market reform act that would give federal regulators information on the holding companies of securities firms like Drexel, which are not now subject to government oversight. Such legislation, he said, would go a long way toward preventing situations similar to Drexel’s.