In mid-September 2008, the investment bank Lehman Brothers, headquartered in Neuyork, became insolvent. The U.S. government refused to come to the bank’s aid. The reason for the government’s refusal to help the bank was probably due to the fact that Lehman Brothers had been repeatedly fined and admonished over the years for violations of stock exchange and accounting rules, some of which had resulted in substantial fines. No other bank in the USA was subject to as many proceedings by the supervisory authority; no other company had such a thick file of such serious misconduct as Lehman Brothers. Malicious tongues insinuated that then U.S. Treasury Secretary Henry Paulson, the former head of Goldman Sachs, had wanted to do his old firm a favor and had therefore allowed a leading competitor to go under. – The collapse of Lehman Brothers is seen as the transition of the subprime crisis into a global financial crisis because the institution had international roots in all financial markets and the bank’s ruin caused a shock wave. – At the time of the collapse in the fall of 2008, Lehman Germany had a branch in Frankfurt am Main with around 150 employees and total assets of EUR 16.2 billion in 2007, roughly equivalent to that of the Frankfurter Sparkasse. – From a regulatory perspective, the collapse revealed some momentous weaknesses. Although Lehman Brothers operated as an independent legal entity in London and was directly supervised by the FSA, the U.K. regulator’s hands were tied when the London branch of Lehman Brothers transferred billions of euros to the head office in New York. The FSA was also found powerless in the face of the decision in the USA to accept a collapse of Lehman Brothers, even though this decision had serious consequences for London as a financial center and for the stability of the British financial system. – The ECB was left holding Lehman collateral pledged as collateral, which was recognized at EUR 5.7 billion in 2008. In the years that followed, most of this collateral was sold to buyers around the world. – See supervision, global, Bear Stearns bankruptcy, crash, case-by-case decision, specialist banking system, guarantor liability, Gibrat rule, Gigabank, G-Sifi, Hypo Real Estate rescue, megamania, moratorium, rush to exit, shock wave, debt bomb, single master liquidity conduit, mandatory convertible bond, too big to fail principle, subsidiarity principle, separation banking system, consumer complaints, trust. – See BaFin Annual Report 2008, p. 41 (CESR Observatory on the Lehman bankruptcy), p. 120 (overview of difficulties leading up to resolution), p. 141 (customer complaints regarding Lehman certificates), BaFin Annual Report 2009, p. 163 f. (BaFin special audits regarding Lehman certificates), Financial Stability Report 2012, p. 98 (continuing dangers from the collapse of globally interconnected institutions).
Attention: The financial encyclopedia is protected by copyright and may only be used for private purposes without express consent!
University Professor Dr. Gerhard Merk, Dipl.rer.pol., Dipl.rer.oec.
Professor Dr. Eckehard Krah, Dipl.rer.pol.
E-mail address: info@ekrah.com
https://de.wikipedia.org/wiki/Gerhard_Ernst_Merk
https://www.jung-stilling-gesellschaft.de/merk/
https://www.gerhardmerk.de/