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The US financial regulator has launched an investigation into accounting tricks by Wall Street firms designed to mask heavy losses.

The Securities and Exchange Commission (SEC) has written to financial firms to see how widespread the use of accounting tools such as Repo 105 is.

A recent report accused collapsed bank Lehman Brothers of using this device to hide the true extent of its losses.

The SEC said the investigation will last a number of weeks.

Shifting assets

Earlier this month, a report by a court-appointed examiner criticised Lehman Brothers for using Repo 105 to give the impression that the bank was reducing its levels of debt, when in reality it was not.

It accused Lehman’s of removing temporarily $50bn (£33bn) of assets from its balance sheet in 2008 alone.

The collapse of the 158-year-old investment bank in September of that year was the world’s largest bankruptcy.

Repo 105 is a legal accounting device that involves shifting around assets to reduce the size of a company’s balance sheet, and effectively give the appearance that debts have been cut.

The SEC is concerned that the practice is widely used on Wall Street.

"We’ll be getting very detailed reporting information from financial institutions about how they have accounted for and disclosed their refinancing or their sales under repos," said SEC head Mary Schapiro.