From Lehman Brothers to Credit Suisse, 15 years of changes in the financial sector

Between the fall of Lehman Brothers in 2008 and the rescue of Credit Suisse This year, the financial sector has changed significantly over the past 15 years, marked by a wave of acquisitions and increased regulation.

Greater regulation

Since the 2008 crisis, banks have been forced to adopt greater regulation due to pressure from regulatory bodies in Europe and the United States.

Now they must have a minimum level of capitalization that allows them to compensate for significant losses and thus be more solid in the face of major crises.

This measure was promoted by the Basel Committee (Switzerland), a key body in the banking sector.

Each entity must have large amounts of liquidity and easy-to-sell assets in order to be able to react to a wave of cash withdrawals by clients.

The rules applied since 2008 aim to prevent the authorities from being forced to intervene and rescue financial entities with public money, as happened after the fall of Lehman Brothers.

In the case of bankruptcy of a banking player, European leaders “They now have a framework” to react and face this situation, regardless of the size of the bank, highlighted in 2022 the president of Banco Santander, Ana Botín, who then chaired the European lobby of the financial sector.

The acquisition of Credit Suisse by UBS, for 3 billion Swiss francs (about US$3.36 billion), exemplified this new operation.

UBS announced in August that it was renouncing financial aid from the Swiss State and Central Bank, which had been granted to it to rescue Credit Suisse.

Recomposition of the sector

After the Lehman Brothers crisis, bank acquisition operations multiplied.

Between September and October 2008, Bank of America bought Merrill Lynch for US$50 billion, the British Halifax-Bank of Scotland (HBOS) did the same with Lloyds for US$12.2 billion, while Santander acquired the British Bradford & Bingley and the French entity BNP Paribas took control of Fortis’ activities in Belgium and Luxembourg.

“The crisis, deep down, served to clean up and put an end to those most fragile actors,” recalls Xavier Musca, the current deputy general director of Crédit Agricole and the general director of the Treasury in France in 2008.

In Europe, however, there were fewer changes in finance than in the United States, where “That crisis represented an opportunity for the US government to restructure the banking sector.””says Musca.

Currently, commercial banks are dominated by US entities that “They took advantage of some differences in regulations to take over parts of the market in Europe,” explains David Benamou, chief investment officer at Axiom Alternative Investments.

Are banks still fragile?

Bank failures in the United States in early 2023, along with the Credit Suisse bailout, fueled fears of another global financial crisis.

The turbulence in spring, according to Musca, demonstrated the need to maintain the current rules in the sector and avoid deregulation, which would mean “a return to the past”.

When he arrived at the White House in 2017, then-President Donald Trump relaxed the rules of most of his country’s banks, with the exception of the 13 largest.

This deregulation contributed to the financial difficulties of the first half of the year in 2023.

Faced with this situation, regulatory bodies proposed measures to strengthen the soundness of banks.

“There is still work to do, but we are in a much better situation”says William Dudley, the former vice president of the New York office of the Federal Reserve, who maintains that the big banks “They are now subject to much stricter regulations than in 2007-08.”

Source: AFP