Lessons of Lehman Brothers

The Cologne-based Institute for Economic Research (IW) on Monday presented a study on how European banks had changed some five years after the collapse of Lehman Brothers in the US. The report said this bankruptcy didn't cause the global financial crisis, but certainly helped it explode.

IW Director Michael Hüther said quite a number of measures and reforms that policy makers around the world proposed to prevent a repetition of the crisis had already been implemented in Germany and the wider EU, or were at least in the process of becoming a reality.

He mentioned new requirements for banks to boost their core capital for the protection of taxpayers. Hüther said lenders had until 2018 to secure more financing to this end, with the largest German banks still needing a total of 32 billion euros ($42.8 billion) to meet the target.

Points of criticism

Hüther also praised the new rules on coupling managers' salaries and bonuses on a lender's longer-term success, the introduction of stock exchange-like standards for trading derivatives and insolvency rules for winding down failing banks in the future.

"I'd also like to mention the new so-called bail-in rules which in essence mean that creditors will also be asked to partly foot the bill when a bank fails," Hüther said in a statement.

The IW study explicitly commended European plans for a joint banking union, with the biggest lenders to come under direct ECB supervision.

The institute was less convinced of requirements for banks to separate their retail and investment businesses, claiming that previous important synergy and balancing effects would get lost. It also criticized plans to introduce a Europe-wide financial transaction tax, stating such a measure would not at all address the root causes of the ongoing crisis. In addition, IW said financial institutions would easily be able to pass on extra costs to their clients through higher premiums - meaning that the political objective of taxing the lenders themselves would not be achieved.