Lehman Brothers was more vulnerable to liquidity losses than Credit Suisse was in 2007 — let alone than Credit Suisse is today.
To be absolutely clear, really bad managers could still blow up a bank today — and that’s as it should be; regulation isn’t meant to make private enterprise completely foolproof. Poor executives could choose terrible assets, fail to understand or manage risks, or lose the faith of their staff and their clients. Yet the industry— and especially the biggest banks — have been forced to change their balance sheets and funding sources in ways that make it much harder for a bank to blow up in a really fast and chaotic fashion.
Banks’ direct exposure to each other through lending is significantly lower than before 2008 and their funding is longer term. They have to own a much higher proportion of easily saleable assets — particularly government bonds and central bank reserves. Both things reduce the risks that any bank could be forced to rapidly sell other kinds of corporate loans or bonds in a way that causes losses across the financial system.
If there is a next Lehman moment, it is much more likely to have its epicenter elsewhere in financial markets.
Paul J. Davies is a Bloomberg Opinion columnist covering banking and finance. Previously, he was a reporter for the Wall Street Journal and the Financial Times.