15 years ago today, an earthquake struck the financial world. Lehman Brothers, one of the world’s largest investment banks, was bankrupt and many bank customers’ money was gone. What has the industry learned from this?
It is Monday, September 15, 2008 – and the investment bank Lehman Brothers is bankrupt. For many affected bank customers, the news comes out of nowhere. The anger and the lack of understanding are great.
A bank call center employee had a lot of desperate people on the line at the time. “Some of the people became completely desperate,” he remembers. “I had people crying on the phone. Some just screamed from the first word.”
The finance minister was wrong
After the fall of Lehman Brothers, many things were no longer the same as before. At the time of the crisis, the then Federal Finance Minister Peer Steinbrück was still trying to calm things down. “The USA is the origin of the crisis and it is the focus of the crisis,” says the SPD politician. “It’s not Europe and it’s not the Federal Republic of Germany.”
A fatal mistake. The rescue of Lehman Brothers fails. It’s actually “too big to fail” – but the state is letting the bank fall. With consequences worldwide.
States have to save banks
Governments quickly put together rescue packages worth billions, and the major central banks jointly lowered interest rates in an emergency action. In the months after the Lehman bankruptcy, the states of the European Union pumped around 1.6 trillion euros into failing banks.
It took almost a decade and a half to wind down the US investment bank. In the end, $115 billion was paid out to creditors, and they were also compensated in Germany.
Stricter rules, stricter supervision
But what has the financial world learned from the crisis? “The regulations have become significantly stricter,” says Klaus Nieding from the German Association for the Protection of Securities Ownership (DSW). “We have received a comprehensive set of rules in order to strengthen the capital base of the large credit institutions.
The so-called Basel regulations have been tightened. The resilience of banks should improve. The entire European financial supervision system was reorganized, including the US one. But that is exactly what is being questioned there, says Christoph Schalast, professor at the Frankfurt School of Finance and Management.
“In America at the moment there is talk of liberalization again – that the strict rules that we experience in Europe and the USA and that have been introduced worldwide through Basel 3 should be relaxed, especially because of the interest rate turnaround,” said Schalast. “So far, European banks have coped very well with the interest rate turnaround.”
Another bank run
Just a few months ago there was a “bank run” on the Silicon Valley Bank in the USA – there was great fear of no longer getting access to one’s money. The bank was closed. A little later the next blow: in the banking country of Switzerland, the financial institution Credit Suisse goes bankrupt. The danger that this would trigger a second financial crisis was there again.
So is there no absolute security? “We have carried out simulations. We have equity requirements,” says DSW expert Nieding. “But I don’t actually see that we would be immune from a meltdown in the financial sector.”
“It will happen again”
Expert Schalast is also convinced that banks will go bankrupt again. “It will happen again. There will be another bank insolvency. That cannot be prevented.”
But: The crises are not comparable, says Schalast. Risk management in banks is much better today than before 2008.