Whatever happened at barings? Part two: Unauthorised trading and the failure of controls

Paul Stonham

European Management Journal, 1996, vol. 14, issue 3, 269-278

Abstract: The collapse of Barings, one of Britain's oldest merchant banks, in February 1995, was the result of massive losses (over £800 million) run up on derivatives trading by its chief Singapore trader, Nick Leeson. The spectacular failure focused attention on risk management products and the structure and operations of financial institutions trading them. Part Two of this Case Study examines Leeson's unauthorised dealings, together with the techniques he employed to disguise the huge losses on his trading. It is demonstrated that, even within the unauthorised strategies employed by Leeson, he was inconsistent and illogical as well as lacking in good judgement and competence. Official government reports subsequently criticised Barings' internal and external controls, and accused supervisory bodies of lax regulation. Part Two also suggests lessons to be drawn from the collapse.

Date: 1996
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