The fourth largest bank in the United States, Lehman Brothers, declared bankruptcy at seven o’clock in the morning on September 15, 2008. An important event that would cause one of the worst global economic crises in history. The most serious since the Great Depression of 1929.
The investment bank takes a high risk on loans terrific loans, loans given whether or not the mortgagees are repaid, the important thing is that they signed up to continue making money. Banks package and sell these financial products in the market to have liquidity so they can provide more loans. The deregulation of the sector and bad management led to this bubble to the point of putting the global financial system at risk, because many financial entities in the United States and Europe became participants in the pie, which is empty of inside, on uncollected debts.
But Lehman Brothers, which was not saved by the authorities or entities, went bankrupt, causing a domino effect in the global financial system.
After 15 years of this bankruptcy, which changed the history of the world economy, the financial systems of the world, although little in common, experienced their own “Lehman Brothers moment”, because the financial entities stopped being strong for a few hours.
The problems of Evergrande Group, one of China’s largest real estate developers; the bankruptcy of US regional banks: Silvergate Bank, Silicon Valley Bank, Signature Bank, First Republic Bank and Heartland Tri-State Bank; as well as the rescue of Credit Suisse, they all went through their “Lehman Brothers moment.”
she businessman Juan Real Street shared a few days ago on his social networks a precise thought: “Spring 2008, Bear Stearns went bankrupt. September 2008, Lehman Brothers went bankrupt. Spring 2023, Silicon Valley Bank went bankrupt. History is not always repeats itself, but sometimes it is the same.”
After public condemnation and a period of regulatory reforms, 15 years ago the banks enjoyed a profit, due to the restructuring of their businesses, giving preference to fund management and traditional business .
The podium has remained unchanged since 2017, the year Wells Fargo fell to fourth place, replaced by Bank of America. And for six years now, the big three banks, JP Morgan, Bank of America and China’s ICBC have remained the three largest banks in the world. The fifth place belongs to Morgan Stanley, so the United States has four banks among the five largest in the world.
Greater regulation
Lehman, the investment bank, founded in 1850, with $639 billion in assets, caused a financial collapse, followed by a global recession, a European debt crisis and an economic collapse in Mexico. , the main trading partner of the United States. in addition to a series of social and political changes.
The crisis eliminated Bear Stearns and Lehman Brothers, and forced the fiscal bailout of Citi and AIG in the United States, as well as 27 European banks. Merrill Lynch was sold to Bank of America and Goldman Sachs and Morgan Stanley became commercial banks to receive aid from the Federal Reserve (Fed).
Banks must adopt a stricter regulation, due to pressure from regulators in the United States and Europe, which means the need to maintain a minimum level of capitalization to face significant losses. and to strengthen their resistance to financial crises. management, described by Marco Oviedo, strategist and economist for Latin America at XP Investments.
The main purpose of these rules implemented since 2008, he stated, is to prevent the authorities from being forced to intervene and rescue financial institutions with public funding.
Limited risks
In March 2023, the bankruptcy of regional banks in the United States, along with the bailout of Credit Suisse in Europe by UBS, created anxiety about the possibility of another global financial crisis, underscoring the importance of avoiding deregulation. which may lead us back to financial problems similar to those of 2007 and 2008.
However, in 2017, former US President Donald Trump relaxed regulations for most of the country’s banks, except for the 13 largest. This deregulation contributed to financial difficulties in the first half of 2023. In response, regulators proposed measures to strengthen the stability of banks.
“The risks are limited, without a doubt the law promoted after the crisis is more strict. However, there are always risks, which arise as the economic reality of the world changes,” said Janneth Quiroz, economic director, exchange and Monex stock market analysis.
Only in the United States, said Luis Gonzalí, co-director of investments at Franklin Templeton Mexico, people gradually withdraw their money from the bank, called “bank walk,” because they realize that the Banks will not give them. the returns produced by other instruments, such as an investment account that pays you a return of 5.50 percent, for example.
“The banks are losing deposits. This will be a risk; “The fact that the banks continue not to offer an attractive rate, and that the clients reduce their balances to send them to in investment accounts, giving the bank less capacity to lend, which creates a reduction in credit and a reduction in economic activity.” Gonzalí emphasized.
As the years passed, economies recovered from the Lehman disaster, but a pandemic arrived.
For Marco Oviedo, one of the risks is that the United States economy continues to grow rapidly and inflation does not decrease as predicted by the Fed and the market.
“It is, to maintain a high rate, that an institution or a company has problems. On the other hand, a restriction of liquidity that causes a recession; On the fiscal side there is no place to support, and inflation is not as low as before the pandemic.” At this point in history we are 15 years away from Lehman Brothers, Oviedo explained.
