Wednesday, October 28, 2009

The Lehman arms race

Regulators Prepare for the Next 'Big One' (WSJ -- may need a ticket to read)
Global economic policy makers are just beginning to grapple with a key issue rising out of last year's bankruptcy of Lehman Brothers Holdings: how to react if -- or when -- the next big global bank spins out of control.

The bank, which collapsed in September 2008, had 2,985 legal entities in 50 countries, according to the Basel Committee of regulators and central bankers. When Lehman imploded, authorities around the world didn't know which assets they could sell in a hurry, and markets panicked over worries about which institutions were exposed.

To avoid a repeat, the Basel Committee said in a report last month that banks should provide regulators with updated information on organizational structures, lists of counterparties, asset inventories for each legal entity and country, groupwide contingency funding plans and information needed to quickly settle financial contracts. Such plans have come to be known as "living wills."

"This issue has been understood for a very long time," Mr. Green said. "But every time this issue has been looked at, it's been put back into the 'too difficult to handle' box."
Lehman investors lost 2,985 arms and the leg they had left to stand on.

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