http://online.wsj.com/article/SB120716296435884053.html?mod=googlenews_wsj WASHINGTON -- For the first time in more than a decade, the Federal Reserve has set up shop inside brokerages to monitor their financial condition, perhaps the beginning of an expanded role for the central bank and additional regulation for Wall Street. The Fed's new role is tied to its recent decision to lend money to Wall Street firms. The central bank already loaned funds to commercial banks, but it also regulates them. The expanded reach of the Fed comes amid criticism aimed at the Securities and Exchange Commission and its oversight of Bear Stearns Cos. before its collapse. The SEC traditionally has been the regulator of Wall Street firms. SEC Chairman Christopher Cox likely will face pointed questions when he testifies Thursday alongside other regulators before the Senate banking committee. In recent days, criticism of SEC has mounted, with Sen. Jack Reed (D., R.I.), requesting that the Government Accountability Office review the SEC's enforcement program. On Wednesday, Sen. Charles Grassley (R., Iowa) asked the SEC's inspector general for an independent review of the agency's handling of a 2005 investigation into Bear's pricing of mortgage-related assets. The SEC staff intended to file charges, but ultimately the case was closed without the SEC's filing charges. The Treasury Department's blueprint to modernize U.S. regulation of financial markets, which was published Monday, calls for increasing the Fed's role on Wall Street. It asked the President's Working Group on Financial Markets to consider recommending whether the Fed should to make its lending process more transparent; attach conditions to loans, such as collateral limitations; and conduct on-site examinations. The last already appears to be happening. Fed staff is on site at Goldman Sachs Group Inc., Morgan Stanley, Lehman Brothers Holdings Inc., Merrill Lynch & Co. and Bear, which has agreed to be sold to J.P. Morgan Chase & Co. Each of the brokerages has disclosed that it has borrowed from the Fed since it temporarily opened its lending facility last month, while Merrill Lynch hasn't said whether it did. A Merrill spokeswoman declined to comment. Fed Chairman Ben Bernanke met Monday with Mr. Cox to discuss joint exams, which could start a process to formalize how the two agencies share information. The SEC currently examines brokerages. In recent years, it has begun looking at the holding companies for the five largest brokerages, monitoring their risk management, capital and liquidity. In testimony Wednesday before Congress's Joint Economic Committee, Mr. Bernanke said the Fed has put examiners into investment banks and is working with the SEC ensure that the firms' financial positions are adequate. "We want to be sure that any lending we do to the investment banks will be done on an appropriately sound basis," Mr. Bernanke said. Mr. Cox wouldn't say whether the two agencies would create a formal joint review process. One SEC official suggested it was likely that the agencies would work out a formal memorandum of understanding that could call for real-time information sharing about the finances at investment banks, even after the Fed's temporary financing window closes. In the past, the Fed examined large dealers for their role as counterparties in open-market operations and bidders at Treasury auctions but dropped that in the 1990s to dispel the appearance of being their regulator. The SEC didn't have an immediate comment on why it has closed the 2005 Bear Stearns probe. In response to Mr. Grassley's letter, the agency's Inspector General David Kotz said, "We intend to conduct a thorough investigation." Of the SEC's handling of the Bear collapse, a spokesman has said previously: "The SEC's net capital and customer protection rules ensured that all of the brokerage customer accounts were safe and protected, and served that purpose very well."