An inquiry panel is hearing from former CEOs of two big banks that succumbed to the financial crisis, Lehman Brothers and Wachovia, as it delves into the "too big to fail" predicament and potential system-wide risk from financial institutions.

Federal bank regulators also are appearing today before the bipartisan Financial Crisis Inquiry Commission, established by Congress to investigate the financial meltdown that plunged the economy into the most severe recession since the 1930s.

After the sub-prime mortgage bubble burst in 2007, complex investments called credit default swaps, which insured against default of securities tied to the mortgages, collapsed. That brought the stunning downfall of Lehman Brothers. Its implosion into the biggest bankruptcy in US history on 15 September 2008 triggered a worldwide panic in financial markets.

US officials, as they scrambled to avert economic catastrophe, declined to rescue the once-venerable Wall Street titan while injecting tens of billions of dollars into others – like the insurance conglomerate American International Group.

Aided and prodded by the government, Wells Fargo acquired North Carolina-based Wachovia, which had done a huge business in adjustable-rate mortgages, enticing borrowers who later defaulted on their home loans. That $12.7bn (£8.3bn) deal, announced in early October 2008, created a coast-to-coast powerhouse with operations in 39 states and the District of Columbia.

Scheduled to testify at Wednesday's hearing are Wachovia's former president and CEO Robert Steel; former Lehman chairman and CEO Richard Fuld; Scott Alvarez, general counsel of the Federal Reserve; Thomas Baxter, general counsel and executive vice president of the New York Fed; John Corston, an official of the Federal Deposit Insurance; and Barry Zubrow, chief risk officer at JP Morgan Chase.

Under the landmark financial overhaul law enacted in July, regulators are empowered to shut down financial institutions whose collapse could threaten the system, ending the doctrine of "too big to fail".

Fuld, a towering figure whose nickname was "the Gorilla", has publicly conceded no errors or misjudgments in the chaotic period that led to Lehman's bankruptcy. He told a congressional hearing in October 2008 that the firm did everything it could to limit its risks and save itself. It failed, he said, because of a "crisis in confidence" on Wall Street, market manipulation in which investors preyed on distressed financial players by betting on their demise, and would-be buyers who waited for the government to step in to help fund a sale.

More recently, a court-ordered autopsy of Lehman found that an accounting gimmick called Repo 105 provided financial relief to the firm in the months before its collapse. After saddling itself with tens of billions of troubled assets that could not easily be sold, Lehman masked its debt and its perilous financial condition by using the accounting artifice, an examiner appointed by the bankruptcy court found in a report issued in March.

Lehman's estate has claimed in a lawsuit that JP Morgan Chase helped drive Lehman into bankruptcy by forcing it to give up billions of dollars in cash reserves that it otherwise could have used to stay afloat. JP Morgan was Lehman's clearing agent, acting as intermediary between Lehman and its trading partners.