Barings Bank Case Study

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Baring bank was a England merchant bank based in London, and the second oldest bank in the world after Berenberg bank. Barings is one of the most reputable financial institutions in all of the United Kingdom. Baring bank was founded in 1762, Founded in 1762 by the Dutch Johann Baring, who had immigrated to England, Barings formed part of the countryʼs history. Even the Queen of England was among its clients. However, the bank suffered a fall in 1995 after experiencing a loss of £827 million ($1.4 billion) committed by employees of the bank itself called Nick Leeson who worked at a baring branch of singapore. Barings Bank sends one of their traders, a young Englishman named Nick Leeson born in February 1997, to work in its Singapore branch. …show more content…
Barings top management less familiar business proprietary problem (transaction for his own interests). If Barings Auditors and top management understands the business of trading, they would know that it is impossible for Leeson obtained a profit of which he reported, if not taking greater risk anyway. And of course top management and
Auditors questioning where the origin of the spider. Lack of knowledge about the trading Barings business is indeed justified in considering the most senior Barings managers have a background of merchant banking. The members of the Assetand Liability Committee (ALCO), which monitors market risk, stated it's a matter of quantity of positions taken Leeson, but later felt comfortable with the thought that eksposure Barings over market risk is relatively small because Leeson over the hedgethe position.
2. There are no mechanisms of Checks and balances. The management of Barings violated important rules in business trading, namely letting Leeson did a settlement over transactions that he does himself. This happens because Leeson holding authority in the dealing desk and the back office. Briefly back office should perform the necessary checks to prevent unauthorized transactions and minimize the potential for fraud and embezzlement. Because Leeson back office control and because
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There are no limitations on the transaction. Barings don't set limits for proprietary positions Leeson because it felt did not bear the risk of the market to arbitrage deals. Indeed arbitrage deals only terpapari very little market risk, but such transactionscontain risks and settlement risks basis. The basic risk occurs if the prices in the two markets do not always move together or with the same rate, whereas the settlement risk occurs because different markets have different settlement system, so that it can create the risk of liquidity and funding. Let us risk occurs, derived from inventions, that many of the positions of the left dihedging. It also let us risk sinking Metallgesellschaft, a company manufacturing Germany in 1993. The story of the Barings and Metall gesell schaft showed the necessity of a greater attention on the needs of temporary funding for the position hedged, or just half of it in hedged. Senior manager of Barings continued to fund the activities of Leeson because they thought that they were paying the margin for the position hedged, whereas they actually lose money on the transaction directly. Metall gesll schaft on the other hand, refused to provide temporary financing because they thought suffered damages in the contract on the hedged. Both these incidents illustrate the need for senior managers to understand more about positions

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