Lehman's former chief says Fed made crisis worse

RICHARD FULD, the former chief executive of Lehman Brothers, yesterday accused the Federal Reserve of worsening the financial crisis by allowing his investment bank to fail in 2008.

In the most vigorous defence yet of his actions at the helm of Lehman, Mr Fuld’s testimony at the Financial Crisis Inquiry Commission in Washington laid much of the blame with regulators. He said the US government pushed his firm into filing for bankruptcy, and denied it the same access to Fed credit that other banks were allowed.

He said the weekend before the collapse in September 2008, the Fed allowed greater access to its credit facilities: “Only Lehman was denied that expanded access.”

He added: “I submit, that had Lehman been granted that same access as its competitors, even as late as that Sunday evening, Lehman would have had time for at least an orderly wind down, or for an acquisition which would have alleviated the crisis that ensued.”

Mr Fuld has been castigated widely for taking on too much risk and engaging in off-balance sheet financing that gave investors a flawed impression of the company’s health. He acknowledged he made mistakes, but insists “there was no capital hole” at Lehman.

Mr Fuld accused the Fed of failing to get a grip of the crisis in March 2008, and said the central bank should have allowed investment banks access to cheap government credit earlier, which “might have lessened the need for additional government intervention”.

Scott Alvarez, the Fed’s general counsel, also testifying at the hearing, said the Fed had no confidence that it would have been paid back had it opened up credit to Lehman.

“I think they failed not because the government wasn’t willing to help them, but because they were a victim of the circumstances and the economy and some bad decisions that they had made in the years leading up to this,” Mr Alvarez said.

Ben Bernanke, the Fed chairman, testifies today. – (Copyright The Financial Times Limited 2010)