Federal Deposit Insurance Corporation has prepared this interesting what-if paper which looks at what would have happened if Frank-Dodd Act (FDA) was enacted before the crisis. Would Lehman have been saved? How would the events flow if we had DFA in place?
This paper looks at the evidence and shows how a global meltdown could have been averted if we had acted on these risks earlier. Under FDA, FDIC gets new powers which allows FDIC to act for systemic financial firms like it does for banks.
The paper starts from reviewing how the events transpired after fallout Bear Stearns. Lehman came on to the radar for the next fallout i- bank. Its executives started to talk with market participants and some were willing to place equity in Lehman. But thanks to the overconfidence of Lehman execs who believed firm was worth more than the offerings, the placements did not go through. And then as people became nervous of its shaky assets and liquidity conditions, people withdrew leading to bankruptcy.
Now, the report asks what would have happened if FDIC could resolve Lehman just like it does for banks? It first lists what FDA allows FDIC to do. It then goes back to Mar-2008 to see how FDIC would have done things differently and helped prevent fallout of Lehman. The reports concludes as: