From Lehman Brothers to Credit Suisse, what has changed in the financial sector in 15 years – 09/11/2023 – Market

Between the collapse of Lehman Brothers in 2008 and the bailout of Credit Suisse this year, the financial sector has changed considerably over the past 15 years, marked by a wave of acquisitions and increased regulation.

See below some of the points that have changed

Greater regulation

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

They must now have a minimum level of capitalization that allows them to offset significant losses and thus be more solid in the face of major crises.

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

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

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

In the event of the bankruptcy of a banking actor, European leaders “now have a framework” to react and deal with this situation, regardless of the size of the bank, highlighted in 2022 the president of Banco Santander, Ana Botín, who then presided over the European lobby of the financial sector.

The acquisition of Credit Suisse by UBS, for 3 billion Swiss francs (around US$3.36 billion or R$16.7 billion at current prices), exemplified this new operation.

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

Sector recovery

After the Lehman Brothers crisis, bank acquisition operations multiplied.

Between September and October 2008, Bank of America bought Merrill Lynch for US$50 billion (R$105.7 billion at the time); the British Halifax-Bank of Scotland (HBOS) did the same with Lloyds for US$ 12.2 billion (R$ 60.7 billion at current prices), while Santander acquired the British Bradford & Bingley, and the French entity BNP Paribas took control of Fortis’ activities in Belgium and Luxembourg.

“The crisis basically served to clean up and eliminate these more fragile actors”, recalls Xavier Musca, current CEO of Crédit Agricole and former director general of the Treasury in France in 2008, speaking to AFP.

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

Currently, commercial banks are dominated by American entities that “have taken advantage of some differences in regulation to gain market share 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, have fueled fears of another global financial crisis.

The turmoil in the spring (in the northern hemisphere, autumn in Brazil), according to Musca, highlighted the need to maintain 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, former President Donald Trump relaxed the rules of most banks in his country, with the exception of the 13 largest.

Deregulation contributed to the financial difficulties of the first half of 2023.

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

“There’s still work to do, but we’re in a much better place,” says William Dudley, former vice chairman of the New York Federal Reserve office, who maintains that big banks “now are subject to much stricter regulation than in 2007-08.”