The looming second banking crisis raises the question whether banks have learned anything from the Lehman debacle only three years ago. They have indeed learned a lesson, but you may not like it.
So we face another Lehman moment. The sea is rising and the wall isn’t high enough so it should be in the self-interest of the core banks to take precautions and raise more capital to withstand the flood – right? Haven’t they learned anything from 2008?
Actually, they have. They have learned from Lehman that they are now bigger and more systemically important than ever. So if they refuse to recapitalize, then the problem is simply passed back to the state to sort out. Oddly, Germany’s entire banking industry has just joined forces to attack the EU’s recapitalization plan. In effect, playing the immoral hazard card. They know there is trouble coming, but sorting it out themselves would cut into profits. Far better to pass it back to the state with a reminder of the consequences of their failure. The lesson of Lehman has indeed been learned – it’s good to be too big to fail. It’s a truly immoral hazard.
