Regulators are "not going to go far enough to prevent this from happening again," said Kenneth Rogoff, a former chief economist at the International Monetary Fund and now an economics professor at Harvard University.
Reforms undertaken since the crisis might not insulate U.S. markets and financial institutions from the sovereign budget and debt crises facing Greece, Ireland and Portugal, according to the U.S. Financial Stability Oversight Council, a 10-member body created by the Dodd-Frank Act and led by Treasury Secretary Timothy Geithner.
"The recent financial crisis provides a stark illustration of how quickly confidence can erode and financial contagion can spread," the council said in its July 26 report.
21,000 Transactions
Any new rescues by the U.S. central bank would be governed by transparency laws adopted in 2010 that require the Fed to disclose borrowers after two years.
Fed officials argued for more than two years that releasing the identities of borrowers and the terms of their loans would stigmatize banks, damaging stock prices or leading to depositor runs. A group of the biggest commercial banks last year asked the U.S. Supreme Court to keep at least some Fed borrowings secret. In March, the high court declined to hear that appeal, and the central bank made an unprecedented release of records.
Data gleaned from 29,346 pages of documents obtained under the Freedom of Information Act and from other Fed databases of more than 21,000 transactions make clear for the first time how deeply the world's largest banks depended on the U.S. central bank to stave off cash shortfalls. Even as the firms asserted in news releases or earnings calls that they had ample cash, they drew Fed funding in secret, avoiding the stigma of weakness.
Morgan Stanley Borrowing
Two weeks after Lehman's bankruptcy in September 2008, Morgan Stanley countered concerns that it might be next to go by announcing it had "strong capital and liquidity positions." The statement, in a Sept. 29, 2008, press release about a $9 billion investment from Tokyo-based Mitsubishi UFJ Financial Group Inc., said nothing about Morgan Stanley's Fed loans.
That was the same day as the firm's $107.3 billion peak in borrowing from the central bank, which was the source of almost all of Morgan Stanley's available cash, according to the lending data and documents released more than two years later by the Financial Crisis Inquiry Commission. The amount was almost three times the company's total profits over the past decade, data compiled by Bloomberg show.
Mark Lake, a spokesman for New York-based Morgan Stanley, said the crisis caused the industry to "fundamentally re- evaluate" the way it manages its cash.
"We have taken the lessons we learned from that period and applied them to our liquidity-management program to protect both our franchise and our clients going forward," Lake said. He declined to say what changes the bank had made.