Ten years, ten weeks

On the first morning of Sibos in Vienna in 2008, news of the demise of Lehman Brothers burst through, radically altering the planned diaries of multiple attendees and speakers.

By Richard Schwartz

13th September – On the first morning of Sibos in Vienna in 2008, news of the demise of Lehman Brothers burst through, radically altering the planned diaries of multiple attendees and speakers. On the 10th anniversary of the start of the crisis, the Bank for International Settlements (BIS) has published a useful timeline of the first 10 weeks of industry and government response. For  those who may not – or may not wish to – recall the exact sequence of events, this what happened:

7th September 2008

Two US mortgage finance agencies (Fannie Mae and Freddie Mac) are taken into conservatorship.

15th September (First day of Sibos)

Lehman Brothers Holdings Inc files for Chapter 11 bankruptcy protection.

16th September

Reserve Primary Fund, a US money market fund with more than $50 billion in assets, “breaks the buck”, triggering large volumes of fund redemptions and contagion effects across money and short- term credit markets; the US government steps in to rescue insurance company AIG.

18th September

UK bank HBOS announces its merger with rival Lloyds TSB; new round of coordinated central bank measures address the squeeze in US dollar funding with $160 billion in new or expanded swap lines; the UK authorities prohibit short selling of financial shares.

19th September

The US Treasury announces a temporary guarantee for money market fund investors; the SEC announces a ban on short sales in financial shares; early details emerge of a $700 billion US Treasury proposal to remove troubled assets from bank balance sheets (the Troubled Asset Relief Program, TARP).

29th September

UK mortgage lender Bradford & Bingley is nationalised; banking and insurance company Fortis receives a $16 (€11.2) billion capital injection; German commercial property lender Hypo Real Estate secures a government-facilitated credit line (subsequently raised to $70 (€50) billion); troubled US bank Wachovia is taken over; the proposed TARP is rejected by the US House of Representatives.

30th September

Financial group Dexia receives a $9 (€6.4) billion capital injection; the Irish government announces a guarantee safeguarding all deposits, covered bonds and senior and subordinated debt of six Irish banks; other governments follow up with similar initiatives or expand existing guarantee schemes over the following weeks.

3rd October

The US Congress approves the revised TARP plan.

7th October

The US Federal Reserve announces the creation of a new Commercial Paper Funding Facility aimed at buying three-month unsecured and asset-backed commercial paper.

8th October

Major central banks undertake a coordinated round of policy rate cuts; the UK authorities announce a comprehensive support package, including capital injections for UK-incorporated banks and guarantees for new short- to medium-term senior unsecured bank debt.

13th October

Major central banks jointly announce measures to improve liquidity in short-term US dollar fund markets, supported by uncapped US dollar swap lines between the Federal Reserve and the other central banks; euro area governments pledge system-wide bank recapitalisations and guarantees for new bank debt.

14th October

The US government announces that up to $250 billion of previously approved TARP funds are to be used to recapitalise banks; 9 large US banks agree to public recapitalisation.

21st October

The US Federal Reserve announces the creation of a new Money Market Investor Funding Facility, under which it will finance the purchase of short-term debt from money market funds.

28th October

Hungary secures a $25 billion support package from the IMF and other multilateral institutions aimed at stemming growing capital outflows and related currency pressures.

29th October

To counter the spread of difficulties in obtaining US dollar funding, the US Federal Reserve establishes US dollar swap lines with the monetary authorities in Brazil, Korea, Mexico and Singapore.

12th November

The US Treasury announces that TARP funds previously earmarked for the purchase of troubled assets will be reallocated to supporting consumer credit.

23rd November

The US government agrees to protect $306 billion worth of loans and securities on Citigroup’s books and to inject $20 billion of cash in return for a $27 billion preferred equity stake

25th November

The US Federal Reserve announces the creation of a $200 billion facility to extend loans against securitisations backed by consumer and small business loans; under another programme, up to $500 billion will be used for purchases of bonds and mortgage-backed securities issued by Fannie Mae, Freddie Mac and the Federal Home Loan Banks.

…and that was only the first 10 weeks.


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