The Failure Resolution of Lehman Brothers
57 Pages Posted: 10 Apr 2014
Date Written: March 31, 2014
Abstract
We examine the resolution of Lehman Brothers Holdings Inc. in the U.S. Bankruptcy Court in order to understand the sources of complexity in its resolution and inform the debate on appropriate resolution mechanisms for financial institutions. We focus on the settlement of Lehman’s creditor and counterparty claims, especially those relating to over-the-counter derivatives, where much of the complexity of Lehman’s bankruptcy resolution was rooted. We find that creditors’ recovery rate was 21 percent, below historical averages for firms comparable to Lehman. Losses were exacerbated by poor bankruptcy planning and mitigated by timely funding from the Fed. The settlement of OTC derivatives was a long and complex process, occurring on different tracks for different groups of derivatives creditors. Consequently, the resolution process was less predictable than expected, and it was difficult to obtain an informed view of the process.
Keywords: Chapter 11, derivatives
JEL Classification: G33, G23, G01
Suggested Citation: Suggested Citation
Do you have negative results from your research you’d like to share?
Recommended Papers
-
Risk-Sharing or Risk-Taking? Counterparty Risk, Incentives and Margins
By Bruno Biais, Florian Heider, ...
-
CDS as Insurance: Leaky Lifeboats in Stormy Seas
By Eric Stephens and James R. Thompson
-
Bank Capital and Dividend Externalities
By Viral V. Acharya, Hanh T. Le, ...
-
Bank Capital and Dividend Externalities
By Viral V. Acharya, Hanh Le, ...
-
Bank Capital and Dividend Externalities
By Viral V. Acharya, Hanh T. Le, ...
-
Clearing, Counterparty Risk and Aggregate Risk
By Bruno Biais, Florian Heider, ...
-
Funding Liquidity, Market Liquidity and TED Spread: A Two-Regime Model
By Kris Boudt, Ellen C. S. Paulus, ...
-
Optimal Collateralization with Bilateral Default Risk
By Daniel Bauer, Enrico Biffis, ...
-
Bank Holding Company Dividends and Repurchases during the Financial Crisis