As many of you who work in the financial services sector are aware, this week signifies the two year anniversary of the collapse of Lehman Brothers. Images of that historical day are still vivid in memory; graduates turning up for their first day of work only to be told to turn around and go back home. Similarly, the more experienced and dedicated, long-serving employees, packing up their desks and walking out, clearly shell shocked that such a huge, Wall Street institution could fail in such a manner. Little did everyone know that this was to be the start of a long and arduous period in the UK, and the global economy.

Although the sub-prime problems were in full swing by the morning of 15 Sept 2008, Dick Fuld’s inability to consider the bank’s 25,000 employees and let his business collapse further fuelled the events that were to follow. Stock markets plunged to levels that had not been witnessed since another history changing event that took place in September seven years previous. A number of other banks had to be bailed out / nationalised to prevent further financial ruin in the market and of course, millions of people were made redundant.

Many have argued and petitioned for tighter regulation in the markets. What used to be a free and open market has now seen a number of initiatives / solutions been set to ensure another downturn of this nature does not occur again. Although not actually implemented as of yet, President Obama has endorsed the Volcker rule, which would essentially prevent banks from engaging in proprietary trading, and also ownership of hedge funds or private equity businesses. Furthermore, Angela Merkel decided at the turn of 2010 to ban naked short-selling as a result of the threat of a potential collapse of the Euro. The latter in particular highlights the problems faced across Europe – Ireland, Spain, Portugal and Greece have all had to face and fend off the threat of sovereign default.

The most recent change to global banking is the Basel III regulation. This requires banks to increase capital so they can be prepared for distress situations. Although the new regulations will not be fully implemented until January 2019, work has begun to ensure that tier 1 ratios hit 6-8% by that time. This transition is particularly important in that it doesn’t present another credit crunch crisis, with institutions not lending money in order to protect their capital adequacy ratio from falling.

Much has happened in the two years since the collapse of one of the most reputable banks on Wall Street. Aside from the above, the UK has witnessed a change in Government, which has highlighted the importance of austerity. The country returned to growth in the last quarter of 2009 and at the start of 2010 it was confirmed that the UK had come out of recession – one of the last major economies in the world to do so. This growth has continued within the financial services sector with headcount increasing exponentially (particularly in Q1), compared to 12 months ago. Where they previously cut too deep following the collapse, institutions are now looking to add resources to compensate for additional business flow this year.

In conclusion, whilst it has been mooted that it could take another 10-20 years before the associations of Lehman Brothers are completely wound up, it is hoped that if the threat of a double dip isn’t realised and hiring continues at its current rate, it will be a lot sooner before the UK economy can return to greater times.

Austerity, Banking, Basel 3, Credit crisis, economy, Financial Services, Lehman Brotheres, recession, Sub prime, Unemployment, Volcker Rule