Document Type
Case Study
Case Series
The Lehman Brothers Bankruptcy
JEL Codes
G01, G28
Abstract
When Lehman Brothers Holdings, Inc. (LBHI) sought Chapter 11 protection, the more than 6,000 counterparties with which its subsidiaries had entered into over 900,000 over-the-counter (OTC) derivatives transactions faced the question of how best to respond to protect their interests. The existence of standardized documentation developed by the International Swaps and Derivatives Association (ISDA) for entering into such transactions meant that the counterparties likely thought that they were dealing with a well-defined and robust set of options in answering this question. Yet, in practice, the resolution of Lehman’s OTC derivatives portfolio ended up being less orderly than the existence of standardized documentation might have suggested it would be. This case explores: (1) whether the default provisions contained in the Master Agreement played any meaningful role in Lehman Brothers’ bankruptcy and its outcome, (2) whether changes should be made to the Master Agreement to reduce the systemic risk associated with derivatives transactions, and (3) how attempts to create global certainty through the use of standardized agreements can be thwarted by the operation of local laws.
Recommended Citation
McNamara, Christian M. and Metrick, Andrew
(2019)
"The Lehman Brothers Bankruptcy F: Introduction to the ISDA Master Agreement,"
Journal of Financial Crises: Vol. 1
:
Iss. 1, 137-150.
Available at:
https://elischolar.library.yale.edu/journal-of-financial-crises/vol1/iss1/7
Date Revised
2019-03-20
Included in
Banking and Finance Law Commons, Bankruptcy Law Commons, Economic Policy Commons, Legal Studies Commons, Policy Design, Analysis, and Evaluation Commons, Public Policy Commons, Securities Law Commons