The Failure of Lehman Brothers and Merril Lynch: A Lesson for the Nigerian Banking Industry

Abstract

In recent times, the instability that experienced in the financial system and banking sub-sector in particular was as a result of institutional failures. Consequently, banking experts in Nigeria said that, the failure of the two banks was an enough signal to the Nigerian banking industry. Therefore, the study examined the collapse of Lehman Brothers and Merril Lynch also as a rethink lesson for the Nigerian Banks. However, the study revealed that the two banks were absolutely limiting to the size and age in  determining the future of their banks instead of depending on the  effectiveness and efficient management of risky assets. Also the  conventional lending procedures were not instituted rather they depend on subprime mortgage arrangement that did not have collateral securities. The declining home prices had made refinancing more difficult as a result of inadequate innovations in securitization. We therefore, recommended that the regulatory bodies should not be over confident and depend on only the conventional tools of bank supervision. They should employ more non-conventional methods of obtaining insider information also the current crops of bankers are sophisticated in recent manipulation as could be seen from the consolidation exercise. CBN should have full autonomy to run the market efficiently. And the supervisory role of CBN should roll up their sleeves to do effective risk management. Finally, government should penalize policy reversal and also allow CBN to have the air of confidence in discharging its responsibilities.

Key words: Failure, Lehman Brothers, Merril Lynch, Lesson, Nigerian, Banking Industry.