Submitted By: HImfr Ivy
Lehman bankruptcy process not only reflects the micro-prudential supervision of corporate governance brought about by the absence of imperfect market and government failures, but also reflects the macro-prudential supervision, the agencies brought the crowd to the risk of trading with the risk and cross-sectoral, cross- lack of regulatory coordination of the regional third-party supervision of the risk posed.
The framework of macro-prudential dimensions of time and space mainly by the dimensions of form, the former refers to the system, how to develop the overall risk over time, which refers to a specific period of time, how risk is distributed among the various financial institutions and interactions.
September 15, 2008, has a 158-year history, called on behalf of Wall Street investment banks - Lehman Brothers filed for bankruptcy protection, the largest bankruptcy in U.S. history, triggered a chain reaction - Insurance giant American International Group (AIG ) and Goldman Sachs Group, Morgan Stanley and other large companies in deep trouble, the global financial crisis broke out.
March 16, 2010, a 2,200-page investigation report Lehman Brothers bankruptcy introduction reveals what is known as the outbreak of the financial crisis marks the Lehman Brothers bankruptcy causes. Can be seen from the analysis of the report, in the process of Lehman responsible parties, in addition to its own use of "buy-back 105" manipulate financial statements, the United Kingdom Linklaters Linklaters opinion letter issued regardless of the consequences, Ernst & Young in the audit of turning a blind eye to this problem, there is a counterparty for greater security, regulatory bodies such as the lack of emergency interventions, are worth considering.
Review the entire report, Lehman bankruptcy causes, brought together all the failures of financial markets, also shows the framework of prudential supervision some of the pitfalls and loopholes. Lehman before 2006, mainly engaged in low-risk brokerage and investment banking business, is a "middle of Business." But after 2006, management participation by other financial institutions, real estate-related derivatives business to obtain lucrative temptation to Lehman's development strategy will be to use its own capital in transition to participate in commercial real estate loans, leveraged loans and private equity funds The "Zoom lever self-class business."
Especially in 2007, the subprime mortgage market began to risks, Lehman executives made the market situation is a major miscalculation, they think the subprime mortgage market's problems will not transfer to other business areas, but not the entire economy impact; In addition, they point to adverse economic expansion strategy that will help surpass other competitors in the subprime mortgage market, take a competitive advantage, it is over-confident and aggressive expansionist policy against the market trend has accelerated the collapse of Lehman.
March 2008, Bear Stearns is facing cash flow difficulties, the acquisition by JPMorgan Chase Bank, the market for the banking panic spread. Lehman knew that the risk exposure of financial leverage is too high, once the market lost confidence in its cash flow will make the repeat of the fracture of Bear Stearns in the past.
In order to maintain market confidence, Lehman began to help themselves. Investment banks, the market is most concerned about the net financial leverage the same pool of liquid assets the amount of assets (liquidity pool). As the subprime mortgage market, the major market makers, Lehman can not sell assets related to subprime financing to reduce leverage and liquidity, in order to support its Lehman's credit and market confidence, Lehman began before the extensive use of a quarterly "curve to avoid regulation," the balance-sheet operations - "buy back 105" glossing over its balance sheet.
In the repurchase, the Lehman 5% discount rate is traded, by $ 100 per capital value of the collateral to 105 dollars. Accounting Standards SFAS140 this operation will be classified as "sales" instead of "financing." Therefore, the repurchase of 105 in the book on the performance of sales, and Lehman's "leverage" in the process to be removed from the balance sheet. In this way, the public investors, rating companies, government officials and the Board without the knowledge of Lehman, Lehman's leverage ratio decreased.
Lehman deal with "buy-back 105" rival operating requirements of this sheet better, more collateral, higher interest rates, which increased the mobility of Lehman in the pressure and, ultimately, the transaction can not be met liquidity requirements opponents filed for bankruptcy protection.
Investigation, former U.S. Treasury Secretary Henry Paulson, Federal Reserve Chairman Ben Bernanke and the Federal Reserve Bank of New York when he was president Timothy Geithner said in March 2008 after the collapse of Bear Stearns, Lehman will be the next they feel a fall, because the symptoms are similar between the two: the high leverage, low liquidity, plus a handful of bad debts. Although various regulatory bodies are aware of Lehman's liquidity a serious problem, but the regulatory action is very limited. And accounting firms turn a blind eye in the audit process.
After the financial crisis, the U.S. government on June 17, 2009 issued a "White Paper on reform of financial supervision", to fundamentally solve the financial regulatory system, contradictions and problems existing mechanism to prevent regulatory risks, improve regulatory efficiency. Moreover, the July 21, 2010, President Obama signed the "2010 Wall Street Reform and Consumer Protection Act" (referred to as "Dodd - Frank Act"), to strengthen regulatory coordination, integration of federal regulatory system to strengthen the Consumer and investor protection, strengthening of financial derivatives and hedge fund.
At the same time, the European Union in 2009, also made proposals on financial regulatory reform. These include: amendments to the Deposit Protection Scheme, capital requirements indicates the amendment, and strengthen the supervision of credit rating agencies, strengthen the supervision of alternative investments.
This is our regulatory system, the asset management industry is also important to experience and learn from. China's existing regulatory system needs to change the situation of multiple management, necessary to establish special institutions to monitor financial markets may exist in the overall risk. The agency should be able to coordinate existing regulatory resources to maintain the overall stability of financial markets primary goal, and advance the financial risks based on existing cases, the preparation of financial crisis management Shijian and guidelines to improve the efficiency of the financial crisis.
