Economics
Decade After Repos Hastened Lehman’s Fall, the Coast Isn’t Clear
- New rules reduced threat of cascading failures, market size
- Safeguards haven’t eliminated risk of fire sales in new crisis
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Ten years after the collapse of Lehman Brothers Holdings Inc. showed just how crucial short-term funding markets are to the financial system, no one is sounding the all-clear.
There’s no doubt that the Federal Reserve has slashed risk in the repurchase-agreement industry by prodding participants and working with global regulators to strengthen the banking sector. The events of 2008 showed why the efforts were needed: Panic in repos, which grease the wheels of debt trading and are a key tool for overnight financing, helped speed up the demise of Lehman and Bear Stearns Cos. in the span of six months.