When Lehman Brothers failed in 2008, it had OTC derivatives exposures alone of $ billion with thousands of counterparties. It should have come as a surprise to no-one that the financial bullwhip effect from Lehmans’ failure was far more painful than from LTCM. Yet it did. That is because, at the time of Lehman’s failure, no data existed to monitor meaningfully this network risk. Like the supermarket inventories of the early 1970s, the inventory list of bilateral exposures among the world’s biggest banks was dog-eared, sparsely populated and out of date. Over the past three years, a variety of initiatives have sprung up to fill this vacuum. One key plank has been better quality and more frequent data on links between the key global financial nodes – a full matrix of bilateral exposures, on and off balance sheet, between the world’s largest financial firms. The Financial Stability Board is orchestrating efforts in this area.36 In time, this will become one of the bedrocks of effective risk management across the global financial system. Having standardised LEIs will make constructing that counterparty matrix far simpler. A second plank of reform has been to put such data to use in helping insulate the global financial network against the failure of one of its key nodes.
When it then became clear that we and the Brits intended to remain on one side, our colleagues quite simply decided to postpone a number of important issues where we had strong views, including the monetary policy framework with inflation targeting, transparency, etc. This also applied to various payment system issues, where our position was weaker on the outside. If we now say “no” to membership, if not for good but at least for the foreseeable future, the situation will worsen further, as I have described already. I think this would be very unfortunate. BIS Review 39/2003