Financial control reporting provisions in the Sarbanes-Oxley Act have resulted in companies hoarding cash at unprecedented levels, according to Federal Reserve board governor Kevin Warsh.

But are other factors at play?

But first, the facts. While the ratio of cash to investment has averaged about 60 percent over the last few decades, it soared to more than 150 per cent by the end of 2004.

You can read a report of his talk to the American Enterprise Institute here or read his address in full here.

According to Warsh, the focus on compliance has diverted attention from broader strategic issues which would require companies to start spending.

"Clearly, Sarbanes-Oxley compliance costs have been substantial, diverting funds and, probably even more importantly, some of the attention of chief executive officers (CEOs) and boards of directors from capital spending and R&D plans,'' Warsh said.

"Every meeting that board members and executives spend focused predominantly on compliance issues is, by definition, meeting time generally not being spent on big strategic questions. However, proving the connection between executives' "mind-share" and capital expenditure rates is difficult. Moreover, firms are benefiting to some degree from reforms arising from Sarbanes-Oxley.

"Based on the evidence available to date, I believe that the uncertainty resulting from the regulatory and legal environment has had meaningful economic implications for business investment and cash holdings."

Warsh said it might also be, to some extent, because of global political uncertainties. At the same time, however, he said that surveys show that confidence is now on the up and the economy is expanding.

True, Sarbanes-Oxley has to some extent created a more inward looking corporate environment. But to say it's turned companies into cash hoarders might be overlooking other factors.

Like, for example, the economic outlook. A weakening housing market and high oil prices are expected to have an impact on consumer demand, leaving BusinessWeek to speculate whether the slowdown in sales at Target is the Canary in the Economy.

Despite the economic positives, we are in an age of global insecurity and to some extent, that might be reflected in the willingness of companies to spend.

Still, the comments of Warsh will provide ammunition for the critics of Sarbanes-Oxley who say the law needs to be overhauled or scrapped.