Lehman Five Anniversary Sacrifice

Kaisheng [Further improvement of the unified and coordinated, fair and efficient supervision system should be the important direction of the current financial regulatory reform. The inconsistency of financial regulatory standards, far from achieving the objective of reducing systemic risk, may objectively lead to regulatory arbitrage and, in turn, to the stability of financial markets. Five years ago, the collapse of Lehman Brothers triggered a domino effect, with a century-old financial and economic crisis sweeping the globe. Today, although Lehman Brothers had long since disappeared on Wall Street, the far-reaching effects of the financial crisis continued.　　As a landmark event in the history of global finance, the issue of Lehman's bankruptcy is worth summarizing and lessons worth absorbing. As is often said, the causes of Lehman's tragic events are multifaceted, linked to systemic risks associated with changes in the external market environment and instability resulting from the subprime crisis, and to the individual risks associated with their own "high leverage" traps. The lessons and revelations of Lehman's bankruptcy also involve many aspects, from sound micro-financial operating mechanism to strengthening macro-prudential regulation, from dialectical view of financial innovation to strengthening financial consumer education, from crisis monitoring to timely policy intervention, and so on.　　This article only from three aspects of the Lehman incident brought us lessons, perhaps with some friends of the view is not the same. A selective financial relief policy is undesirable and is not conducive to preventing contagion. The US government and regulators refused to bail out Lehman when it confronted the liquidity crisis, leaving Lehman in a hopeless situation beyond bankruptcy. Some argue that Lehman's bankruptcy was a direct cause of the financial tsunami's ripple effect. The U.S. government has rescued Bear Stearns and two rooms, instead of bailing out the bigger Lehman Bail-out, the "selective" bailout policy stems from two reasons: the US Government and its authorities, after helping Bear Stearns, have raised questions and criticisms about the government's bailout. The most representative criticism is that the private sector should be held accountable for its own decisions, and that the government's use of taxpayers ' money to pay for the various decisions made by private financial institutions would breed moral hazard for financial institutions. "Two rooms" because of the state-owned background, the United States government can not help.　　But after Bear Stearns and the two houses, Lehman Brothers were once again on the brink, and the US government and regulators, with a wave of criticism of the government bailout, were intent on clarifying their position through the Lehman case that the US government still pursues the core principle of free market policy and will not easily use taxpayer money to rescue the private sector. The second reason is that the subprime crisis had occurred more than a year ago, market investors on the causes of the subprime crisis and possible losses appeared to have a preliminary understanding and estimates, the United States Government believes that its adoption of a series of rescue measures have also begun to play a role, in this case, The US government and its authorities underestimated the potential damaging effects of risk contagion and overestimated the market's ability to repair itself, wrongly thinking that the collapse of Lehman as an investment bank would not cause goldGreater panic or systemic risk in the marketplace.　　The results suggest that such judgments and related decisions not only lead to a very different fate for Lehman and other rescued financial institutions, but also far more damaging to the financial system than previously thought by the relevant policymakers. Lehman's final outcome shows that even in the highly developed market economy of the United States, market forces are limited, market failures, asymmetric information and unpredictable extreme scenarios often make this selective bailout policy extremely risky. On the contrary, if the Government takes some necessary and feasible relief measures at such times, the situation may be very different. The essence of this, of course, is to turn the risk of the financial sector into a public sector risk in some sense. Many people certainly disagree, but the Lehman incident tells us that the role of the government is important at a critical juncture in the financial crisis. One is that the risk tolerance of the public sector is much greater than that of one or more financial institutions; the other is the cost of letting financial institutions go bankrupt (the cost of themselves and the social costs that the government will ultimately bear directly or indirectly) in the face of market systemic risk and the government's ability to bail out. is likely to be much larger than the cost directly paid by the government in its rescue role.　　In fact, in the aftermath of Lehman's collapse, the US government and regulators have taken different measures to deal with other troubled banks, indicating that in a sense they are also aware of the mistakes of the original approach. All the financial crises have indicated that the government's rescue measures and the choice of the time of rescue are very important in the crisis management, which directly affects the financial crisis duration and the degree of diffusion. The collapse of Lehman once again proved that simplicity is not the only correct interpretation of government functions, and that Governments should do something when faced with a crisis.　　Of course, there is no doubt that the government's approach to bail out financial institutions has its drawbacks, but in a critical juncture that could trigger a serious financial crisis, it is only the lesser of the two evils. The key is to try to establish the mechanisms necessary to minimize their side effects, such as a reasonable exit mechanism for government-injected funds to minimize the actual cost of the bailout, for example, the management of financial institutions responsible for insolvency, with stricter accountability mechanisms,　　It's not easy to resign or even take a big pension, and so on. The U.S. government's bailout policy in this round of financial crisis was a success in the 1th, and the cost of government and taxpayers ' eventual payment was controlled.　　But the 2nd is far from enough, which is one of the reasons why people are so Wall Street. Second, a unified and strong financial supervision system is necessary to prevent financial risks the loopholes in U.S. financial regulation have allowed "Lehman" and its complex derivatives business to drift away from regulation for a long time, burying the seeds of its eventual destruction.　　From a deep perspective, the lack of coordinated and unified financial regulatory framework is leading to the failure of financial supervision of the institutional roots. In particular, the United States lacked comprehensive, unified oversight of investment banks.。 Under the independent investment banking model, the SEC is the only regulator whose content is mainly securities trading-related activities, and other regulators are not much involved in their regulation, under which prudential regulation of investment banks and investment risk regulation are virtually absent.　　Fed Chairman Ben Bernanke has reluctantly said that the Fed is not responsible for overseeing Lehman Brothers, and that he has no knowledge of Lehman's accounting practices and the large amount of debt it bears. The second is the lack of unified and effective supervision over the transactions of Non-traditional financial products.　　While regulators have developed more detailed regulatory rules for the traditional business of financial institutions such as commercial banks and insurance companies, it is a regulatory vacuum for non-traditional financial products such as credit-default swaps, which bring huge exposures. Third, the communication mechanism between the regulators is not sound, the unified supervision lacks the basis of implementation.　　In the early days of the crisis, the various risk signs in the mortgage institutions, investment banks and housing mortgage-backed securities were revealed, but the relevant regulators failed to coordinate the steps to take effective measures and lost the most advantageous time for the crisis disposal. It should be said that after the rescue, although necessary, but it is the worst, and indeed there will be side effects, so the government from the financial regulatory framework to eliminate the gap between strengthening the unified coordination of supervision to prevent the occurrence of financial crisis is the best policy. In the increasingly complex financial markets, the segmented regulatory model does not meet the financial requirements of economic development, and it is difficult to implement effective supervision over financial products and financial instruments across markets.　　Therefore, the establishment of a unified and strong financial supervision system is the internal requirements of financial development and the general trend. Third, the proposition of "big but can't fall" is worth considering, strengthening the consistency and validity of supervision standard is the basic precondition of promoting the healthy development of financial industry some say big banks will have moral hazard if they know that the government will rescue them when they are in serious crisis. Such a conclusion may not be tenable. It should be said that the large size of the banks does not necessarily lead to their fear of the fall, the banks will lie in the government's possible rescue of the rocking chair run wild. Because its constraints are manifold. The pressure of the shareholders, the responsibility of the law, the professional reputation of the bankers and so on, all constitute the restriction to the bank, especially the big bank's operation behavior.　　Whether a bank falls, when it falls, can not fall, ultimately depends on the bank's management level, depends on the regulatory objectives, depending on the social risk tolerance. To cite an example of an image, compared to small and medium aircraft, the large aircraft once the damage caused by the loss must be more serious, but people usually prefer to take a large aircraft. In addition to comfort, large aircraft often have better stability and safety in flight. Similarly, compared with small and medium-sized banks, large banks generally have a stronger risk-resistant ability and stability. Because of the financial industry's own economies of scale and scope of economic effects brought about by the competition, usually, large banks have experienced a long-term survival of the fittest and the market choice to survive and develop, with relatively mature and stable wind control culture and perfect governanceMechanism。 Some might think that our big banks are not quite so. It is true, but also need to see that in China's large banks are the absolute holding of the state, they are in the course of business faced with more, more stringent and diversified external supervision, but also assume and carry out more social responsibility. In business development, compared to the "radical" performance of small and medium-sized banks, large banks generally pay more attention to sound management and risk control.　　This has even often led some to criticize the lack of competitive power of state-owned large banks, the weak market sense of enterprise, and so on.　　Therefore, I think that "big banks will inevitably have a state as a patron of the risk", "big banks because they believe that if necessary, there will be a state aid will trigger moral hazard" is biased, is not in line with the actual situation. Of course, some people may explain that the so-called "too big to fail" is not to say that big banks are apt to fall, but that the impact of big banks on economic and social stability will be more serious once problems arise, and therefore the overall standards of regulation must be raised against big banks. The idea is to improve the ability to guard against the risks of the banking system, but it does not seem to be a good option now. I believe it is because the government has invested a lot of money in bailing out some of the big banks during the global financial crisis, so the various versions of the regulatory reform package have given more attention to big banks.　　The international financial regulatory framework, for example, has labeled "systemically important financial institutions" to a number of large banks, imposing higher capital adequacy requirements, with an additional 1%-2.5% per cent added to the systemic impact of bank capital. But in fact, I think it is not because of the big banks that led to the financial crisis, "the proposition of being too big to fail not only simplifies the cause of the financial crisis, but also strengthens regulation for the big banks, although there is some (only certain) rationality, but for economic development, it may bring new side effects: First, Higher regulatory standards aim to reduce systemic risk in the banking sector, but the additional capital requirements for big banks, which could lead to a dampening of the credit capacity of big banks and further impact on the smooth growth of the economy by exacerbating the credit crunch, have been reflected in the chronic weakness of the global economic recovery after the crisis. This is particularly necessary in emerging markets where indirect financing is a priority. Second, in the context of a significant increase in bank capital standards, to avoid the deep "deleveraging" of the damage to economic growth, only through another channel is through financing to make up the gap in bank capital.　　But to make up for the huge financing gap of the banking industry in the stipulated timetable will undoubtedly put great pressure on financial markets, especially in countries where capital markets are underdeveloped, which may exacerbate financial fluctuations and lead to new economic and social risks. Based on the above views on the Lehman bankruptcy, the author of China's financial supervision system reform to make the following two recommendations: first, accelerate the development of a unified financial regulatory framework for the system. Recently, the State Council approved the People's Bank ofLeading the establishment of the Joint Ministerial Meeting system of financial supervision and regulation, which is to fasten the mechanism of coordinating and unifying financial supervision in the form of institutionalization, is of great significance to solve the problems of regulatory conflict and regulatory gaps. With the further deepening of China's financial market reform in the future, on the basis of Joint Meeting system, we should further promote the coordination and consistency of regulatory standards, strengthen supervision over cross financial products and cross market financial innovation, and further promote the change of institutional supervision mode to behavioral supervision and functional supervision mode,　　Continuously improve and perfect the unified financial supervision system. Second, establish a fair and realistic financial regulatory standards. In response to the so-called "big but not to fail" problem, international financial regulation is now generally adopted to allow large banks to bear excess capital and impose more restrictions on their operations. From the perspective of prudential supervision, the large banks must meet the higher capital requirements in general sense, and some special supervision practices in China. In fact, there is no causal relationship between the scale of banking institution and its crisis, and the key to prevent systemic risk is to improve the effectiveness of regulation. We should combine the actual situation of our country's economic and financial development, perfect and perfect the corresponding supervision standard, and establish a reasonable and fair exit mechanism on the basis of establishing the deposit insurance system.　　The implementation of the actual capital and leverage requirements to curb the blind expansion of the impulse, the implementation of comprehensive risk management, no matter what banks should be the same. In a word, I think it is important for the current financial supervision reform to further improve the unified and coordinated and fair and efficient supervision system. The inconsistency of financial regulatory standards, far from achieving the goal of reducing systemic risk, may objectively lead to regulatory arbitrage and, in turn, to the stability of financial markets.　　At present, with the emergence of the emerging financial sectors, such as sub-markets, organizations, tools and models with financial or quasi-financial functions represented by Internet finance, the new risk points of the financial system should be vigilant, and strengthening the coordination and unification of financial supervision is of particular importance. (The author is the original president of ICBC)