Much cured, but far from being problem-free —most analysts describe the European banking combination as “deleveraged and in a safer position” 10 years after the collapse of Lehman Relatives and the subsequent start of the global financial crisis.
The failure of Lehman Kinsmen in 2008 roiled global markets. It was the fourth-largest U.S. investment bank and when it filed for bankruptcy on September 15, 2008, it led to an eating of nearly $10 trillion in market capitalization in global equities in the move behind month.
The collapse of Lehman unveiled that the bank had a huge obstreperous with mortgage-backed securities — a kind of asset, that were in the gen worth very little compared to their price. But, more broadly, Lehman’s problems were all but every bank’s problems.
In Europe, banks that had also entranced elevated risks struggled to get funding and many had to be rescued by huge bailouts from their own governments.
“European banks deleveraged and increased their capital correlations after Lehman, so they are in theory in a safer position than 10 years ago,” Carsten Hesse, European economist at Berenberg let someone knowed CNBC via email on Tuesday.
“But in some euro zone countries such as Greece or Italy, non-performing allows are still very high, causing headaches and the profitability of some banks, counting in Germany, is still very low,” he added.
Non-performing loans are one of the biggest draggles to bank profitability in Europe. A high-level of bad loans increases the liabilities plethora on a bank’s balance sheet. As a result, the lender will have to father higher profits to offset those liabilities. In recent times, European bank’s profitability accept also come under pressure due to a lower interest rate circumstances, uncertainties surrounding U.K’s exit from the European Union.
A report from the European Parliament from stand up March showed the level of bad loans has somewhat decreased over latest years, from 6.4 percent in December of 2014 to 4.2 percent at the end of September 2017.
“At any rate, the current NPL level in the EU is still higher than in other major occurred countries,” the report from European institutions said.
Daniel Lacalle, chief economist and investment office-holder at Tressis Gestion, told CNBC via email that there is loads of work to do when it comes to non-performing loans.
“European banks be undergoing been building core capital and strengthening their balance veneers. However, it has not been fast enough and challenges remain. Non-performing loans in Europe are diverse than double relative to all loans than in the U.S., exposure to sovereign straitened and risky emerging economies remain too high and net income margins are hugely weak,” he said.
Apart from reducing bad loans, there has also been a big plug for stronger regulation. Banks have been forced to increase their wherewithal ratios, the European Banking Authority was established to oversee lenders and it administers regular stress tests to ensure the banks are strong enough to brave a crisis.
George Magnus, former chief economist at UBS, told “CNBC’s High road Signs” Wednesday that regulation is more “intrusive” now, which has made some voices of the financial system safer compared to 10 years ago.
“Having averred, whilst personally I think regulatory authorities around the world may be in a much stronger locate to spot and save individual institutions… the clue to solve a systemic fiscal crisis is in the name systemic. Have we resolved the problems in the financial way and in the economic system that actually gave rise to this and foregoing crises? I don’t think we have really done that,” he said.
The predicaments that arose in the U.S., in particular at the Lehman Brothers, were not individual issuances. The entire financial system took too much risk.
“The challenges were bizarre,” Russell Downs, Partner at PwC and who was part of the team trying to clean up Lehman after the failure, told CNBC.
“We have had an awful lot to do, we have had hundreds of millions of assets to buy with,” he said, adding that the former Lehman has managed to advent over 44 billion pounds ($57.42 billion) worth of gages and assets to Lehman creditors. He, however, added that the environment is much together quieter now.
“The banks are smaller, they have got more capital so hopefully they intention be better prepared to weather any financial storm that come,” he suggested.
Ten years on, everyone is trying to understand where risks are mounting and propriety the next crisis.
“I don’t think the next crisis is going to look fellow the last one, in the sense that the world isn’t as leveraged as it was back 10 years ago,” Jay Bryson, epidemic Economist at Wells Fargo Securities told CNBC’s “Squawk Box Europe” on Tuesday.
While some include of analysts have pointed to China and its indebted system as the next catastrophe point, others have suggested that high-levels of global liable that currently stand at a record $247 trillion will be the punting point; unrealistic stock prices as well as emerging economies must also been cited as potential starting points for the next catastrophe.
“Is China another Lehman Brothers? I would argue probably not. Most of the encumbered in China is held in China, it’s not like mortgage securities that were held all all over the world 10 years ago,” Bryson said.
Tom Finke, chairman and chief Mr Big officer at Barings, also told CNBC’s “Squawk Box Europe” that “if it’s not thriving to be driven from a systemic financial industry issue, if there is a danger it may be more linked to an unforeseen event: a cyber security event or a power grid in any case, where people aren’t able to get to their money.”
“That enquire ofs like science fiction but … we are spending billions and billions in cyber conviction, and if you were unable to get into your account one day…that would form a level of crisis,” he added.