Why do regulators care?
The exposure of a firm to changing market conditions is indicative of the firm's stability. In the case of Lehman Brothers, their exposures were within normal bounds. What brought them down was a refusal of firms to lend to Lehman on a short-term basis to fund their operations. This lead to failed margin postings leading to their default.
Work is going ongoing by regulators to find new ways to measure the 'health' of banks. This includes capital rules and margin regulations. Following the events of 2008, regulators settled on three main ways to avoid this happening again:
- Mandating certain products to become cleared
- Mandating margin agreements for the uncleared products
- Updating and redesigning capital measurements
Politicians found themselves having to spend government money in the US and UK to rescue failing banks - something they never expected to be doing.
Private enterprise should succeed or fail without impacting the everyday lives of high wall street people. The