Christine Lagarde has said male domination of the banking industry made the collapse of Lehman Brothers more likely, as she urged further reforms to prevent a repeat of the financial crisis triggered by its failure a decade ago.
Writing on the IMF blog ahead of the 10th anniversary of the US investment bank’s collapse next week, the head of the International Monetary Fund said significant measures had been taken to fix the financial system, although she warned more work was still required, particularly on gender diversity.
“As I have said many times, if it had been Lehman Sisters rather than Lehman Brothers, the world might well look a lot different today,” she said.
The chief executives and chairs of Britain’s four biggest banks are all male, while the proportion of female board directors at companies across the wider FTSE-100 ranking of major British firms is in decline. There are, however, exceptions, such as at Santander UK, where Shriti Vadera is chair, and Virgin Money, where both the chair and chief executive are female.
Research from the IMF shows a higher proportion of women on the boards of banks and financial supervision agencies is associated with greater stability. Lagarde called the collapse of Lehman Brothers a “sobering lesson in groupthink” that many economists had failed to spot coming. In this context, she said a key ingredient of reform would be more female leadership in finance.
“Greater diversity always sharpens thinking, reducing the potential for groupthink,” she said, adding: “This very diversity also leads to more prudence, and less of reckless decision-making that provoked the crisis.”
The failure of Lehman Brothers, which was one of the oldest and biggest investment banks in the world before its humiliating demise, triggered a ripple effect in the global financial system as banks around the world stopped lending to one another for fear they might not get their money back.
“In the immediate aftermath of Lehman, we were really staring into the abyss,” Lagarde said, calling the collapse a “holy cow” moment for the world economy.
Governments in the US and Europe stepped in with taxpayers’ money to bailout struggling lenders, including RBS and Lloyds in the UK, to protect their economies from losing valuable access to finance. There have, however, been lasting effects, as the crisis triggered damaging recessions across the developed world, with severe consequences for living standards still being felt.
Lagarde said the heavy economic costs borne by ordinary people, combined with anger at the bank bailouts and bankers enjoying impunity, was among key factors behind the rise of populism and backlash against globalisation. Economists believe the recession in the UK, government austerity and weak wage growth, coupled with this anger, are among key reasons for the Brexit vote two years ago.
“We have come a long way, but not far enough. The system is safer, but not safe enough. Growth has rebounded but is not shared enough,” she added.
