Accessibility links

Breaking News

US Banking System Faces Shakeup


Financial lenders are facing a major industry reorganization Monday that promises to change the face of banking in the United States. From Washington, VOA's Sean Maroney reports.

Early Monday, the U.S. investment bank Lehman Brothers announced that it will file for bankruptcy.

In a statement, Lehman said its filing for Chapter 11 in U.S. bankruptcy court will not affect its broker-dealer subsidiaries or other units.

Sunday, talks aimed at stabilizing the 158-year-old investment bank ended after Bank of America and Britain's Barclays Plc decided against buying it.

Lehman was once the fourth-largest investment bank in the United States. But market analyst Hugh Johnson says bad investments in real estate and other areas brought a drastic fall in the value of Lehman shares.

"Lehman, like so many other investment banks and banks, really got, quite frankly, caught up in the housing bubble, but, like every bubble, the bubble ended and now we're seeing the downside of that bubble," Johnson said.

On Sunday, Merrill Lynch agreed to be bought out by Bank of America for some $50 billion. Analysts say the move will result in the nation's prime lender (BA) becoming even bigger.

In a separate move late Sunday, the U.S. Federal Reserve announced several initiatives to make it easier for financial institutions to get emergency loans from the U.S. central bank.

Officials from 10 global banks and securities firms also announced a $70 billion loan program that the companies could use to help ease a potential credit shortage.

Government and banking officials are concerned that the failure of a large institution, like Lehman Brothers, could shake confidence in the financial system and hurt the value of other firms.