Different Lessons from Lehman Brothers and Fortis

Abstract

Over two decades of financial deregulation and rising competition have prompted financial institutions in the developed world, such as Lehman Brothers in the US and Fortis in Belgium, to develop structured products that are opaque and lack proper risk and regulatory controls. This sowed the seed for a financial disaster. Unlike AIG, the failures of Lehman Brothers and Fortis were more macro-driven, with the bursting of the US housing bubble putting the final nail in their coffins. The developed world banking sector will go through a period of re-regulation. Conventional banking practices will return, while complex financial engineering will be reduced sharply in the coming years of debt liquidation process. The pricing power of the universal banks will grow, due to their dominance in the financial community. This bodes well for the Chinese banking/financial conglomerate model when it comes to overseas expansion.