Bank Insolvency and Resolution in European Countries: A Case Study of Lehman Brothers

Abstract

The 2008 financial crisis served as a cautionary tale that talks about concerns of safety and stability in the finance industry. Financial markets and institutions are vulnerable to periodic issues of significant illiquidity and insolvency, in addition to fraud and other malpractices that, if uncontrolled, can lead to a crisis, system wide. The risk of instability exists both at the individual as well as the aggregate levels of financial institutions and markets, and its realization can result in substantial social and economic costs. Amidst over three decades of struggle to smoothen international financial regulatory and prudential policies, the Basel Committee on Banking Supervision did not address the resolution of a large, complex international bank. The 2008-2009 financial crisis and the conclusion that multiple large and complex financial institutions had become too large to fail propelled resolution towards the forefront of the global regulatory agenda.