On past 15 years HE financial sector has undergone significant changes, since the fall of Lehman Brothers in 2008 until the rescue of Swiss credit this year. These years are characterized by a fun to get and greater regulation of financial world.
Behind the crisis of 2008 banks were forced to adopt stricter regulation due to pressure from European and US regulators. This means the need for maintain a minimum level capitalization to deal with large losses and strengthen your immunity in the face of the financial crisis.
These regulatory measures largely sponsored by the Basel Committee in Switzerland, a key body in the banking sector. In addition, financial institutions must continue sufficient liquidity reserve and quickly liquidate assets to account of possible large withdrawals cash from customers.
The main purpose of these rules, implemented since 2008 is to prevent the authorities from being coercive to intervene and save financial institutions with public funding, as happened after the collapse of Lehman Brothers.
Lehman Brothers: what changed the world of finance
If there is a bank failure, Europe’s leaders will now have it with a regulatory framework that allows them to operate independently in the size of the bank, as emphasized by Ana Botín, president of Banco Santander in 2022, when he headed the European lobby in the financial sector.
The acquisition of Swiss credit by UBS for 3,000 million in Swiss francs (approximately $3.36 billion) shows how this new framework will work. UBS announced in August that it had rejected the financial aid from the State and the Swiss Central Bank that it had been given to rescue Credit Suisse.
After the crisis of Lehman Brothers, there is a wave of acquisitions in the banking sector. In 2008, Bank of America acquires Merrill Lynch at $50 billion, Halifax-Bank of Scotland (HBOS) followed Lloyds for $12.2 billion, and Santander bought Bradford & Bingley in the UK, while BNP Paribas took over Fortis’ activities in Belgium and Luxembourg.
Xavier Musca deputy general director of Crédit Agricole and former general director of the Treasury of France in 2008, pointed out that the crisis served to eliminate the most vulnerable financial players in the market.
Despite these changes Europe has experienced fewer disruptions in the financial sector compared to the United States where the crisis represents an opportunity to change the banking sector, according to Musca.
Currently, investment banks are dominated by US entities that take advantage of regulatory differences to expand in Europe, explained David Benamou, chief investment officer of Axiom Alternative Investments.
Bankruptcy of US banks in early 2023, with the rescue of Credit Suisse raising concerns about the possibility of another global financial crisis. These events highlight the importance of maintaining current regulations in the sector and avoiding deregulation that could lead us back to financial problems similar to those of 2007-08.
In 2017, the former President of the United States, Donald Trump, relaxed regulations for most banks in the country except for the 13 largest. This deregulation contributed to financial difficulties in the first half of 2023. In response, regulators have proposed measures to strengthen the health of banks.
William Dudley, former vice president of the Federal Reserve’s office in New York, argued that large banks are now subject to stricter regulations compared to 2007-08. Although there is work to be done, The current situation is much better in terms of financial regulation.