15 years after Lehman bankruptcy: banks are significantly better positioned

15 years after Lehman bankruptcy: banks are significantly better positioned
Lehman Brothers
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Controls and regulation of banks have been expanded too much. In principle, however, crises cannot be ruled out. Nowadays, risk comes more from negative dynamics following rumors on social media and from the digital and therefore massively accelerated processing of banking transactions.

“We have absolutely learned something from Lehman,” says Wifo banking expert Thomas Url and, in an interview with the APA, refers, among other things, to the significantly higher capital requirements for domestic banks, but also to biennial stress tests for systemically important banks. In the EU, several institutions have been created to control financial institutions, including the “Financial Market Stability Board”, which, as part of the European “Systemic Risk Board”, carries out a forward-looking risk assessment. Most recently, this led to the tightening of the rules for lending in Austria (KIM-VO).

Financial market expert and former Raiffeisen chief analyst Peter Brezinschek is also convinced that lessons have been learned from the Lehman bankruptcy. Apart from stricter capital regulations, for example with the “Basel III” requirements for banks, risk management has gained “much, much greater importance” and we now know that it is “fatal” to believe that the value of real estate always can only go up. The banks have also recently proven that they can cope well with a sudden, sharp rise in interest rates, he told the APA.

Crisis was a crisis of trust

Basically, the crisis of 2008 was, above all, a crisis of trust, said Brezinschek, because the banks no longer lent each other or large customers money, even if they had enough money. A key insight from the problems at the time was to strengthen trust in the financial sector. “The most valuable capital that banks have is the trust of customers and other commercial banks,” emphasizes the former Raiffeisen banker. “You shouldn’t mess around and sow distrust in the financial system,” because without banks the economic system wouldn’t function. But, Brezinschek points out, “crises always come where you don’t expect them.” Even if he doesn’t see an acute threat, one should keep an eye on the incredibly high share valuation of some companies in the AI ​​sector or the situation of the real estate industry in China.

Url also believes that crises would look different today. A “bank run” like back then, i.e. people standing in line at the bank counter or ATM, would be completely different today. Today, with electronic banking, this is much faster and less visible. In addition, the large deposits of people with specialist knowledge could be withdrawn in a flash at the first rumors – this was the fate of the Californian Silicon Valley Bank: enormous amounts of capital were drained out in just a few weeks.

No banking crisis at the moment

Url and Brezinschek do not entirely agree on whether bank rescue through (partial) nationalization brings economic advantages. Brezinschek thinks highly of this step. In the USA and some European countries, this meant that taxpayers ultimately made money from it. Url, on the other hand, points out that emergency nationalizations in Austria were associated with severe losses – probably also because most institutes were already supported in advance by state guarantees. “You can do that, but the quick resolution can keep the need for public funds lower,” said Url, referring to the new regulation for bank resolution (Single Resolution Act), which was also created after the Lehman bankruptcy.

Even though some US banks have recently gone under, one cannot speak of a banking crisis under the current conditions, Url and Brezinscheck certainly agree. Only “boutique banks,” as Url calls it, are affected. The Silicon Valley Bank, for example, specialized in managing the deposits of start-ups and sometimes received billions from individual customers after a round of financing – but these were then withdrawn very quickly during the crisis.

Brezinschek says, “It’s not a banking crisis, but a crisis of special banking models that every beginner should have noticed.” It is no coincidence that the affected institutions are based in California; the supervision there is very expansive and committed to low interest rates. The banking structure in the USA changed fundamentally in 2008, when huge investment banks without customer deposits, such as Lehman Brothers in particular, began to falter. With Morgan Stanley and Goldmann Sachs, there are only two large investment banks left and they are much more strictly regulated than they were back then. The former shadow banking system with unregulated special purpose vehicles no longer exists.

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