Financial reform may fail to avert another Lehman

By Huw Jones

LONDON (Reuters) - The collapse of Lehman Brothers a year ago has been likened to the 1994 crash that killed Formula One star Ayrton Senna, in the way it has spurred calls for root-and-branch review of risk in the financial sector.

Senna's tragedy led to regulatory changes in racing that have been effective; deaths on the track are now a rarity.

But governments are not finding it nearly as easy to make quick and comprehensive changes to financial regulation.

That means risks may remain for another collapse on the scale of Lehman in coming years, though authorities would probably be able to act more decisively next time to prevent a financial crisis from spreading around the globe.

The core lesson from Lehman for governments has been clear -- regulating against all future crises is futile but there are ways to limit fallout and need for government bailouts.

Britain witnessed at first hand with Lehman the legal nightmare when a complex, global bank goes under. Its financial services minister, Paul Myners, wants banks to simplify their structures and make "living wills".

"We need to move to implementation across the EU. The time has come to move from theorising to action. Simple structures are an essential precondition for effective arrangements," Myners said.

Patrick Buckingham, a partner at Herbert Smith law firm in London added: "The sheer complexity of the Lehman insolvency has inevitably triggered a desire for a plan for an orderly wind down in the form of a living will, and may also lead to regulators asking for current entity arrangements to be simplified."