SEC says conduits may pose risk

The Securities and Exchange Commission is monitoring the biggest Wall Street securities firms to gauge whether they face losses from investment vehicles that sold short-term debt, an agency official said Wednesday.

The SEC, concerned about the collapse of the sub-prime mortgage market, is reviewing “contingencies that might place additional strains on the balance sheets” of investment banks, Erik Sirri, head of the agency’s market regulation division, said in congressional testimony.

“These include the potential unwinding of off-balance-sheet funding structures, such as conduits,” he said.

Banks set up conduits to sell tens of billions of dollars of commercial paper, which is debt due in 270 days or less.

Citigroup Inc., the largest U.S. bank, is one of several lenders that may suffer if forced to cover losses, the Wall Street Journal reported Wednesday. Citigroup has about a quarter of the structured investment market, the Journal said.

Paul Stephens and Richard Burrows, directors in the London-based group that supervises Citigroup’s investments, said the asset portfolios were performing well, the newspaper reported.