Monday, October 2, 2023

From Lehman Brothers To Credit Suisse, 15 Years Of Financial Sector Transformation

Between the collapse of Lehman Brothers in 2008 and the bailout of Credit Suisse this year, the financial sector has changed dramatically over the past 15 years, marked by a wave of takeovers and increased regulation.

Since the 2008 crisis, banks have been forced to adopt greater regulation due to pressure from regulatory bodies in Europe and the United States.

Now they must have a minimum level of capitalization that allows them to compensate for large losses and thus be more stable in the face of major crises.

This step was initiated by the Basel Committee (Switzerland), a key body in the banking sector.

Each entity must have a large amount of liquidity and readily marketable assets to be able to react to a wave of withdrawal of money by clients.

The rules applied since 2008 aim to prevent authorities from being forced to intervene and save financial entities using public money, as happened after the fall of Lehman Brothers.

In the case of the bankruptcy of a banking player, European leaders “now have a framework” to respond and deal with such a situation, regardless of the size of the bank, emphasized in 2022 the president of Banco Santander, Ana Botín, which he then headed. the European lobby in the financial sector.

Credit Suisse’s acquisition of UBS, for 3 billion Swiss francs (about $3.36 billion), reflects this new operation.

UBS announced in August that it had rejected the financial aid from the Swiss State and Central Bank, which it had provided to save Credit Suisse.

After the Lehman Brothers crisis, bank takeover operations increased.

Between September and October 2008, Bank of America bought Merrill Lynch for $50 billion, the British Halifax-Bank of Scotland (HBOS) also did Lloyds for $12.2 billion, while Santander acquired the British Bradford & Bingley and the French entity which BNP Paribas took. control of Fortis’ activities in Belgium and Luxembourg.

“The crisis, basically, served to clean up and end the weakest actors,” recalled Xavier Musca, the current CEO of Crédit Agricole and the general director of the French Treasury in 2008, in statements to AFP .

In Europe, however, there are fewer financial changes than in the United States, where “the crisis represents an opportunity for the US government to change the banking sector,” said Musca.

Currently, commercial banks are dominated by US entities that “take advantage of some regulatory differences to gain market share in Europe,” explained David Benamou, chief investment officer of Axiom Alternative Investments.

Bank failures in the United States in early 2023, along with the Credit Suisse bailout, have sparked fears of another global financial crisis.

The chaos of the spring, according to Musca, shows the need to maintain the current rules of the sector and avoid deregulation, which means “returning to the past.”

When he came to the White House in 2017, President Donald Trump relaxed the rules of most banks in his country, except for the 13 largest.

This deregulation contributed to the financial difficulties in the first half of the year of 2023.

Faced with this situation, regulatory bodies have proposed measures to strengthen the health of banks.

“There is still work to be done, but we are in a better situation,” said William Dudley, the former vice president of the Federal Reserve’s New York office, who maintained that the big banks “are now under more stricter regulation than in 2007-08”.

Nation World News Desk
Nation World News Desk
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