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Bank crisis lessons 'not learned' Bank crisis lessons 'not learned'
(1 day later)
A year after Lehman Brothers collapsed, a think-tank has warned the lessons of the crisis have not been learned. A year after Lehman Brothers collapsed, a think tank has warned the lessons of the crisis have not been learned.
The Institute for Public Policy Research (IPPR) says the rapid return to the City's bonus culture shows real reform has been "very limited". The Institute for Public Policy Research (IPPR) says the rapid return to the City's bonus culture shows that real reform has been "very limited".
The warnings echoed a speech by US President Barack Obama, who warned of complacency in the banking sector.The warnings echoed a speech by US President Barack Obama, who warned of complacency in the banking sector.
Also, UK Prime Minister Gordon Brown said that there was "unfinished business" with the banking sector. Also, UK Prime Minister Gordon Brown said that there was "unfinished business" with banks.
Bailouts
Lehman Brothers, once the fourth-largest US investment bank, filed for Chapter 11 bankruptcy protection in the early hours of 15 September 2008.
LIVE DEBATE: ONE YEAR ON BBC's Lucy Hockings at London's City Hall
Sir Howard Davies, the former head of the city regulator the Financial Services Authority, has just told me that bankers are influenced by deeds, not actions.
They are going to expect to be bailed out again unless central banks are tougher on capital and tougher on regulation.
We'll be watching the G20 meeting in Pittsburgh to see if international regulation can be tightened. Follow the debate
Governments around the world subsequently had to pump trillions into their financial systems through bank bail-outs, central bank actions and huge stimulus plans to save their economies from collapse.
BBC business editor Robert Peston said that Lehman's collapse had huge repercussions on the psyche of investors and the scale of the financial crisis.
"The significance of Lehman Brothers was in the massive panic that it caused in the marketplace, where funds were withdrawn from any bank anywhere in the world that was perceived as remotely vulnerable," Robert Peston said.
"That was the moment people thought, crikey, we're on the verge of a depression."
Most economists now think the world has avoided a second Great Depression, that some thought possible a year ago.
'Alarm bells'
Bob Diamond, CEO Barclays Capital: 'Some valuable lessons have been learned'
But there is now concern that as the banks start to recover, they have not taken the necessary steps to prevent a repeat of the crisis.
"Alarm bells should be ringing with the early signs of a 'back to business' attitude in the City and little evidence that policymakers are taking measures to ensure the next economic recovery is better balanced than the last one," said Tony Dolphin, senior economist at the IPPR."Alarm bells should be ringing with the early signs of a 'back to business' attitude in the City and little evidence that policymakers are taking measures to ensure the next economic recovery is better balanced than the last one," said Tony Dolphin, senior economist at the IPPR.
BBC AFTERSHOCK SEASON The BBC reports on the first anniversary of the credit crunch across radio, TV, and online. See and hear class="" href="/2/hi/business/8234734.stm">the sights and sounds of the day of the crash in our audio slideshowOur class="" href="/2/hi/business/8242825.stm">crisis timeline shows the key events as the global recession unfoldedAnd follow the money: class="" href="/2/hi/business/8249411.stm">Track the $11tn of bailout spending and see what it means for the taxpayers who funded it class="" href="/2/hi/business/8214272.stm">Listen to WS radio on the crisis class="" href="/2/hi/in_depth/business/2007/creditcrunch/default.stm">Full coverage of Aftershock series The report warned that unless urgent action was taken, the banking crisis might not be the last of its type.
The report warned that unless urgent action is taken, the banking crisis may not be the last of its type.
'Reckless behaviour'
On Monday, President Obama issued a warning to banks that were ignoring the lessons of the financial crisis.On Monday, President Obama issued a warning to banks that were ignoring the lessons of the financial crisis.
"We will not go back to the days of reckless behaviour and unchecked excess at the heart of this crisis," he said."We will not go back to the days of reckless behaviour and unchecked excess at the heart of this crisis," he said.
He called on Wall Street to support "the most ambitious overhaul of the financial system since the Great Depression". He called on Wall Street to support "the most ambitious overhaul of the financial system since the Great Depression". It has so far met with opposition in the banking industry.
It came as Mr Brown said he was determined that world leaders meeting in Pittsburgh next week would "complete the unfinished business" of cleaning up banks - including establishing rules on bonuses. 'Important changes'
In a BBC interview to mark a year since the collapse of Lehman Brothers, he said global action was needed to clean up the sector. Speaking on the BBC World News channel, John Lipsky, deputy managing director of the International Monetary Fund, defended the international response to the crisis, saying "some fundamental changes" had already been made or were underway.
The IPPR also said that greater international co-operation was needed and suggested that might be achieved if countries such as China and India were given a bigger role in bodies such as the International Monetary Fund. BBC AFTERSHOCK SEASON The BBC reports on the first anniversary of the credit crunch across radio, TV, and online. See and hear class="" href="/2/hi/business/8234734.stm">the sights and sounds of the day of the crash in our audio slideshowOur class="" href="/2/hi/business/8242825.stm">crisis timeline shows the key events as the global recession unfoldedAnd follow the money: class="" href="/2/hi/business/8249411.stm">Track the $11tn of bailout spending and see what it means for the taxpayers who funded it class="" href="http://www.bbc.co.uk/worldservice/specialreports/aftershock.shtml">Listen to WS radio on the crisis class="" href="/2/hi/in_depth/business/2007/creditcrunch/default.stm">Full coverage of Aftershock series
It called for internationally-agreed principles of banking regulation that would lead to a financial system that would operate in the interests of the whole economy. "We have made important changes in creating crisis prevention instruments that have a chance of success in a world of cross-border finance," he said.
Bail-outs "In addition, the international community has come together to provide substantial new resources for the fund."
Lehman Brothers, once the fourth-largest US investment bank, filed for Chapter 11 bankruptcy protection in the early hours of 15 September 2008. As for the financial industry itself, Bob Diamond, the chief executive of Barclays Capital, told the BBC he thought lessons had been learnt.
At the same time, Bank of America announced it was taking over Merrill Lynch to rescue it from bankruptcy. "We've made mistakes. The important thing is to learn from those mistakes and change the way we do things," said Mr Diamond, whose bank bought Lehman Brothers' US operations out of bankruptcy.
Governments around the world have had to pump billions of pounds into their banking sectors to prevent their collapse. "In future, banks will be operating with more equity, with less leverage, with bigger buffers of liquidity."
There is now concern that as the banks start to recover, they have not taken the necessary steps to prevent a repeat of the crisis. The IMF's Mr Lipsky, however, said there was still some way to go.
One of the suggestions is that a change to the bonus system would prevent short-term risk-taking and such changes are due to be discussed by the G20 leaders at their summit in Pittsburgh. "It remains to be seen if the global community can carry through all the changes [to regulation and supervision] that are recognised as necessary, but will need political determination to succeed."
G20 ahead
UK Prime Minister Gordon Brown said he was determined that world leaders meeting in Pittsburgh next week would "complete the unfinished business" of cleaning up banks - including establishing rules on bonuses.
The Group of 20 (G20) richest nations will meet to discuss the state of the global economy.
Bankers' bonuses - which have been blamed for encouraging risk-taking and prompting the acts that caused the financial crisis - are expected to be one of the most prominent issues.
The G20 has agreed that bonuses should be deferred in order to reward long-term success rather than short-term risk-taking, but have so far opposed mandatory caps on banker compensation.
"At the G20 meeting, the big concept seems to be executive salaries," said Professor Robert Shiller from Yale University. "That's a politically popular movement. But it's not central to making the system work better.
"There's a lot of boring stuff that has to be done," he added.