Risk of new financial crisis remains, warns bank administrator

There is always a risk of another Lehman-style meltdown says Lomas
There is always a risk of another Lehman-style meltdown says Lomas

The UK administrator of collapsed investment bank Lehman Brothers has warned the risks of another financial crisis loom large and said regulators would still struggle to contain investor panic.

A decade on from the start of the financial crisis, Tony Lomas - the PwC partner in charge of the administration of the bank - told the Press Association the complexity of financial products means “there is always a risk” of another meltdown.

The failure of the US banking giant became one of the most famous and shocking moments of the crisis, spiralling the credit crunch into full-blown market chaos.

Despite the lessons learned over the past 10 years, Mr Lomas said regulators would still find it hard to stop a firm going bust once investor and market confidence was lost.

It comes as a stark warning on the 10th anniversary of the crisis this week, as the UK is still suffering the effects of the aftermath with interest rates remaining at record lows and eye-watering levels of government borrowing.

Mr Lomas said he hoped measures put in place in recent years and incoming ring-fencing rules to protect retail customer money would see another Lehman-style collapse picked up sooner and allow a more orderly wind-down.

But he cautioned: “Once the market has lost confidence in a financial institution, it rapidly deteriorates and I find it hard to see how you can restore that.

“I find it hard to imagine that you can stop that rush of business out the door by various devices that have been introduced over the past six or seven years.”

He joined other prominent figures, including former chancellor Lord Darling, in warning of ever-present risks of another crisis.

“Experience is lost and people retire - in their exuberance, people enter the fray with new ideas for products and services and complexity is a hallmark of it,” said Mr Lomas.

“As long as it’s complex, there’s always a risk [of another financial crisis].”

Lehman Brothers went bankrupt in September 2008, just over a year after the credit crunch began.

Its failure was compared to a “massive earthquake” by one dazed worker, walking out of the offices after its collapse shocked global markets.

Nearly nine years later, Mr Lomas and his team in London are still trying to bring closure to what has been one of the most complex administrations in history.

The administrators repaid all of the £35 billion owed to creditors of the European arm of Lehman three years ago - with a surplus of between £7.5bn and £8bn after fees, in what Mr Lomas describes as a “stupendous outcome”.