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FRM Part II · FRM Exam Part II · The Failure Mechanics of Dealer Banks

Which statement best describes why Lehman Brothers' failure in September 2008 differed from Bear Stearns' failure, as discussed in the dealer bank failure literature?

Bear Stearns was absorbed by JPMorgan with Federal Reserve support, whereas Lehman Brothers found no acquirer or official rescue and filed for Chapter 11 bankruptcy. This produced disorderly counterparty losses, close-outs and a severe loss of market confidence.

  1. ALehman was not rescued by an acquirer with official support and filed for bankruptcy, while Bear Stearns was acquired by JPMorgan with Federal Reserve assistanceCorrect
  2. BLehman had no exposure to commercial real estate while Bear Stearns did
  3. CLehman was funded entirely by retail deposits insured by the FDIC
  4. DLehman's failure was caused solely by a cyberattack on its clearing systems

Explanation

Bear Stearns was sold to JPMorgan in March 2008 with Federal Reserve support for some assets. Lehman, after failing to find a buyer, filed for Chapter 11 in September 2008. The other options are factually incorrect.

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