As an example of the dilemma posed by the lack of a legal entity identifier (LEI) system, take the 2008 Lehman Brothers bankruptcy that is generally considered the trigger event for the financial crisis.
It was Lehman Brothers Holdings Inc., the parent company that declared bankruptcy September 15. But Lehman Brothers Inc., the brokerage subsidiary (and member of three DTCC subsidiaries), was not included in the bankruptcy initially, nor was Lehman Neuberger Berman or Lehman Global Alpha Funds, both NSCC mutual fund members. Meanwhile, Lehman Brothers International (Europe) was part of the bankruptcy in Europe and was put “into administration” immediately.
“It’s easy to understand how there was confusion over what was and wasn’t included in the bankruptcy,” said Ronald Jordan, DTCC’s chief data officer. “It would have made a big difference if the industry had had a system to more precisely and quickly determine which entities of Lehman were or were not impacted. That’s one example of why the LEI program is so important.”