Which is the more significant – the tenth anniversary of the collapse of Lehman Brothers, or the tenth anniversary of the opening of the App Store?
For the global financial community world, 15 September 2008 is a key date, weighted with as much symbolism as the great stock market crash of 24 October 1929 had on its day. Like the 1929 crash, the bankruptcy of Lehman Brothers marked the start of a new era, heralding profound technological and regulatory changes aimed at strengthening financial and banking security and stability worldwide. Ten years on, should the rapid development of technology and mass data now be considered a major risk factor?
A vital re-regulation to restore confidence.
The collapse of Lehman Brothers brought an end to a cycle that had begun in the 1970s, over the course of which finance and banking activities were the beneficiaries of deregulation – that is to say, a whole series of measures aimed at reducing the regulatory burden that then existed. The events of September 2008 triggered what has since been described as a tsunami or an avalanche of regulation. This is because, while the wave of deregulation crept in over four decades, it took just ten short years to analyse, debate, pass and impose hundreds of thousands of pages of laws, doctrine and other legal texts.
This legal framework, stricter and fairer, aims to protect and to prevent any recurrence of the global crisis. This is why regulators have forced banks to strengthen their equity, reduce their liquidity risk, and increase transparency in three areas: financial information, compensation management and the conduct of business. All these requirements are intended to restore confidence, improving the resistance and resilience of the banking and financial system but also to break the links, as far as possible, between sovereign states and banks.
A changing role for bankers
So, yes: ten years after the collapse of Lehman Brothers, the banks have changed. They are now forced to assess, measure and take account of risks which received scant attention before September 2008. But, under the combined impact of disruptive technologies and the emergence of new business models, business has also changed, and now takes into consideration the demands and risks of this new paradigm. As a result, 2018’s banker has changed a good deal since.
However, it has to be acknowledged that the major systemic banks are still with us, and are still as big, if not bigger, than in the past. And there is a reason for this: the international rules are not all applied and are sometimes given regional interpretations. The implementation and supervision of these new regulations have remained laborious processes, given the complexity of the texts: a consequence that could well create new areas of risk.
Furthermore, these regulations are already a decade old, since they were conceived and formalised in response to past crises. We lived in a radically different environment because of the role of technologies, some of which were then still at a very early stage in the banking and financial sector. For context, the events of 2008 took place just one year after the launch of Apple’s first iPhone, and the same year as Google Chrome. It was another age.
Safeguarding data: a major task for regulators
Over these last ten years, new kinds of risks have emerged from the rapid development of technology and the generation of mass data. Robots and algorithms have invaded the banking world to the point of disrupting the market with innovative business models, not least the neobanks. This is why the risks associated with the quality and integrity of data, and the security of the information passing through the networks, has grown steadily to the point of posing a major challenge. Not just for banks, but more generally for all organisations.
While concerns about data were not a priority at the time of the Lehman collapse, it is obvious that data now poses a risk with real systemic consequences. Though cyber regulation occupies a growing place in the financial ecosystem, there is considerable room for improvement in international coordination and cooperation, which is very far from achieving the international synergies that exist for solvency or liquidity.
We may now have stronger and more transparent banks, but the environment within which they operate is now governed primarily by the use of technology and management of data. So learning from the past and grasping the present risks to imagine the future: this too is the regulator’s role.