Christine Lagarde: lessons learned from Lehman

The managing director of the International Monetary Fund (IMF), Christine Lagarde, has written an article on the 2008 financial crisis and its aftermath, calling the events leading up to the crisis ‘a sobering lesson in groupthink’. Ms Lagarde said banking culture, ethos and values still need reform, and called for more female leadership in finance, saying greater diversity sharpens thinking, reducing the potential for groupthink.

Ms Lagarde argued that diversity also leads to more prudence, ‘with less of the reckless decision-making that provoked the crisis’. IMF research has found that a higher share of women on the boards of banks and financial supervision agencies is associated with greater stability. ‘If it had been Lehman Sisters rather than Lehman Brothers,’ she said, ‘the world might well look a lot different today’.

Ms Lagarde argued that the core problem that caused the crisis was that financial innovation had vastly outpaced regulation and supervision. She said that while good progress had been made in various areas to address the issues, too many banks, especially in Europe, remain weak.

According to Ms Lagarde, bank capital should probably go up further, and ‘too-big-to-fail’ remains a problem as banks grow in size and complexity. She also cautioned that many ‘murkier activities’ are moving toward the shadow banking sector, and that continued financial innovation adds to stability challenges

Matters are complicated, however, by the ‘fading commitment to international co-operation’. Ms Lagarde warned of new fault lines emerging, from the potential rollback of financial regulation, to the fallout from excessive inequality, to protectionism and inward-looking policies, to rising global imbalances. How we respond to these challenges will indicate how well we have learned the lessons from Lehman, she said.

Source: Web blog: Ten years After Lehman—Lessons learned and challenges ahead