The failure of Lehman Brothers has led stock markets to tumble around the world, including the Dow Jones Industrial Average, which has plunged approximately 300 points (at the time of writing). Indeed, the Federal Reserve and US Treasury have helped to eliminate some of the moral hazard stemming from their intervention in Bear Stearns, Fannie Mae, and Freddie Mac, as they have essentially deemed Lehman as being not “too big to fail.” However, their failure will impact other banks as well, since the firm had $613 billion in outstanding debts.
According to Lehman’s bankruptcy filing, the bank to take the biggest hit is AOZORA of Tokyo, as they loaned Lehman $463 million while Mizuho Corporate Bank Ltd. of Tokyo loaned $289 million. Likewise, Citibank, BNP Paribas, Japan’s Shinsei Bank Ltd., UFJ Bank Limited of Japan, and Sumitomo Mitsubishi Banking Corp. of Tokyo had all loaned sizeable amounts ranging from $177 million to $275 million. Clearly, the bankruptucy of Lehman will resonate throughout the markets, and it will be interesting to see how US Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke will respond today and tomorrow (the Federal Reserve will announce rates on Tuesday at 14:15 EDT).
[B]Dow Jones Industrial Average (Intraday Chart)[/B]
[I]Source: Bloomberg[/I]