Theoretical Investigation for the Failure of Lehman Brothers and Merril Lynch: A Lesson for Banking Institutions in Nigeria

Abstract

The study theoretically examines the failure of Lehman Brothers and Merril Lynch as a lesson for the banking institutions in Nigeria. Hence, the instability experience in the Nigeria financial system in recent time; especially, banking sub-sector was as a result of institutional failure. Banking experts in Nigeria viewed that the failure of the two banks was an enough signal to the Nigerian banking industry. Hence, the study reveals that the two banks were absolutely limited to the size and age in determining their future instead of depending on the effectiveness and efficient management of risky assets. Hence, the conventional lending procedures are not instituted; rather than depending on subprime mortgage arrangement that has no collateral securities. The declining home prices has make refinancing more difficult as a result of inadequate innovations in securitization. The recommends that the regulatory authorities should not only relied on the conventional tools of bank supervision, but, they should employ more non-conventional methods of obtaining classified information. The financial institutions should train and retrain their employees to meet the current reality on ground. The conventional lending procedures should be instituted rather than depending on subprime mortgage management that did not have collateral securities. The Central Bank of Nigeria (CBN) should be proactive to ensure effective supervision and risk management principles.