The US regulators saved investors around the world billions of dollars by letting Lehman Brothers fail. By taking this decision, regulators are forcing investors and the independent boards that represent them, to take a fresh look at their risk measurement, risk management, risk reporting and communication policies. Measures are already being put in place by both regulators and investors that will hopefully prevent a similar meltdown in the future; although the immediate pain to investors will be extremely acute.

The demise of the world financial system, as well as today's investment banks, is greatly overblown

Derivatives operations that package and sell real estate debt obligations will continue to be an important way to mitigate and spread risk to different markets; they just won't be the huge profit machines that they were in 2003-2007. Similarly, investment banking operations will continue, most likely moving back to their traditional roots of underwriting debt and equity offerings and advising mergers, rather than relying on their global trading operations that were their huge profit machines of the last decade.

In the months ahead, expect the following from regulators (particularly in the US and the UK)

Stronger pressure on the financial institutions to elevate the role of the Chief Risk Officer (CRO). No longer just the interpreters of mundane and esoteric VaR calculations, tomorrow's CROs will be given the mandate of reviewing operations and making key decisions that affect the operations of the front offices.

Scenario analysis will be strongly emphasised in the context of reporting and communication to the regulators and investors. Instead of being a closely guarded internal capital calculation tool, scenario analysis will be demanded by regulators in supervisory reviews. "What will you do if default rates hit X percent?" "What will you do if the Loan-To-Values within your portfolios increase to X level?" These scenarios will then be communicated to public investors with much more depth and clarity. The notion that something is "proprietary internal information" will become far less common for banks that have public investors.

Principle reporting will gain a much stronger following amongst regulators. This will be most evident in the Internal Capital Adequacy Assessment Process (ICAAP) in Pillar II of the Basel II Accord. Even if the reported statistical numbers meet current capital adequacy requirements, expect regulators to hit financial institutions hard " namely limiting lending from Central Banks, if they cannot prove that there is a sound and dynamic risk management system in place that can quickly change the current banking and trading operations of a commercial or investment bank.

More detailed disclosure to the investing public on risk and capital adequacy issues. This will mean Pillar III Basel II reports that have been weak in Europe and not even on the discussion board in the US, will be under much more focus in the coming months.

While regulators like the US Fed and Treasury decided not to save Lehman Brothers, allowing the market to straighten the situation out, they will most certainly be working to ensure that market participants have the appropriate information (robust and timely Pillar III market disclosures for capital adequacy) to make decisions about the extent that they are willing to invest in and trade with a financial institution.

In the long term, it means that investors and executives will have to temper their long term growth prospects and take money off the table a little (or a lot) sooner than in recent bankruptcy and buy-out events.