Financial Times FT.com

US banks

Wall Street ‘made rod for own back’

By Francesco Guerrera, Nicole Bullock and Julie MacIntosh in New York

Published: October 30 2008 23:34 | Last updated: October 30 2008 23:34

Wall Street unwittingly created one of the catalysts for the collapse of Bear Stearns, Lehman Brothers and American International Group by backing new bankruptcy rules that were aimed at insulating banks from the failure of a big client, lawyers and bankers say.

The 2005 changes made clear that certain derivatives and financial transactions were exempt from provisions in the bankruptcy code that freeze a failed company’s assets until a court decides how to apportion them among creditors.

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