As a brokerage firm, Bear is overseen by the SEC, which looks through the holding company to review the firm's risk management, cash reserves, size and types of positions held on the firm's balance sheet, and how those assets are being valued. But, unlike the Federal Reserve, the SEC and other regulators don't have a checkbook to help inject money into an investment bank or market when it hits trouble.

"They don't have a whole lot of tools available to them, like the Fed does," says Larry Bergmann, a special counsel at Willkie Farr & Gallagher LLP, who worked in the SEC division overseeing the markets from 1984 to 2005. "Their main concern is that the capital of the firm is there so that if the firm has to liquidate the customers are taken care of."

The Federal Reserve is charged with maintaining the safety of the markets and ensuring no systemic risk undermines the capital system, which it does through its oversight of bank-holding companies. The Fed's emergency move to open up its financing directly to 20 securities firms, through its discount window, signals that the lines between investment banks and commercial banks has blurred. This will likely fuel the debate over the best way to regulate increasingly complex business models that trade in unregulated instruments.

The Federal Reserve's bailout of Bear Stearns may add weight to continuing reviews of financial regulation, say former regulators. "What makes more sense is to have a unified system of financial-services regulation," says Harvey Pitt, a former SEC Chairman. "These various players are all doing the same thing even if they're called different things. It doesn't allow for the effective measurement of risk, the effective development of national policy. It's just a patchwork quilt that needs to be revised."

Yesterday, Senate Banking Committee Chairman Christopher Dodd (D., Conn.) said the Fed should be given some supervisory powers over the investment banks if it is going to lend to them directly through the discount window.

The SEC set up a consolidated supervising program in 2004 to give it comparable oversight of the five largest securities firms as the Federal Reserve has on bank-holding companies. Under the so-called CSE review program, the SEC monitors the funding, risk management and soundness of the investment banks and shares that information with other regulators. It has prodded Bear and other investment banks to increase their reserve levels over the past 12 months.

But the agency's powers are more limited when customers and lenders lose confidence, as was the case with Bear Stearns. The SEC can't inject funds into the market; it can facilitate how a brokerage firm is unwound, help transfer customer accounts elsewhere, and make sure the holding company doesn't siphon funds away from customer accounts. When Drexel Burnham Lambert ran into trouble from financing junk bonds in the late 1980s, the SEC helped unwind the fund and transfer customer accounts.

Last Tuesday, Bear Stearns had $17 billion in cash and cash equivalents. SEC Chairman Christopher Cox said that day: "We have a good deal of comfort" about capital adequacy at bank-holding companies based on "constant," sometimes daily, reviews. Yet, as confidence eroded, Bear's liquid assets had fallen to $2 billion by the end of the day on Thursday, triggering calls to the Federal Reserve for assistance.

As the issues at Bear deteriorated over the past week, questions began to surface as to whether the SEC should have seen the problems coming.

"Should the regulators have figured that out? There's a limit to how much you can reserve for and prevent," said a former SEC official.

Hans Stoll, a finance professor at Vanderbilt University's school of management said, "We may want to revisit the structure of regulation." But he added, "You don't want to lose sight of the fact that this is more liquidity crunch than a problem with regulation."