Our Perspective on Improving Efficiency:

The Lehman Collapse 10 Years Later

10 years following the Lehman Brothers collapse, are markets safer now? With flash crashes, digital currencies, crypto-assets and cyber-attacks among the newest and most challenging risks facing financial institutions today, the next crisis might be triggered by new types of risks that don’t even exist yet. Read more about how we are looking ahead to identify the key risks that could impact financial stability and opportunities to help mitigate or prevent future market crises.

About The Paper

The 10th anniversary of the Lehman insolvency marks a fitting milestone to reflect on the dramatic changes that have transformed global financial markets and risk management over the last decade. But looking back is not a nostalgic exercise. Rather, it is a necessary undertaking to understand how the markets and risk itself have evolved so that the industry is better prepared to prevent or mitigate the impact of future events that could have global systemic implications. That is our goal in this paper.

Despite the many enhancements to financial stability that have been implemented since 2008, the nature of risk has morphed dramatically. Some of the most dangerous and challenging risks we face today barely registered or didn’t even exist on the morning of September 15 when Lehman filed for Chapter 11 bankruptcy and the financial system began to melt down.

The emergence of flash crashes in major markets, as well as the creation of digital currencies and other cryptoassets, are just two examples of new developments that are requiring us to rethink all aspects of risk management. They also illustrate the possibility that the next crisis might be fundamentally different than anything we can envision right now, triggered by new types of risks that didn’t exist 10 years ago or even today.

In this dynamic environment of constant change, the risk management function has evolved to keep pace with and, at times, stay ahead of the risk curve. Shortly after the Lehman insolvency, DTCC established its Systemic Risk Office (SRO) to complement our existing risk disciplines by adding a specific focus on interconnectedness risk, as well as internal and external sources of systemic risk.

The SRO’s mandate also includes the promotion of systemic risk awareness and mitigation across the global financial industry – through white papers and other industry outreach initiatives.

Recognizing that “fighting the last war” won’t adequately prepare us for the next crisis, we have developed this paper to raise awareness of key risks facing the industry and have provided a series of forward-looking opportunities to help strengthen financial stability for the future.