Barings Bank Case Study

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In hindsight, we can see that very simple things could have avoided the collapse of the Barings bank. Right from the beginning, every employee could have been made accountable to one boss. Thus, Nick Leeson would have had to report all his activities to one manager and the manager also would have had no one else to shift the blame to. For Leeson’s strategy, he ignored the huge hidden risk of the derivative markets. From his failure, there are several steps to reduce the derivative market investment risks.
1) The trader should fully understand the high leverage risk of the derivative products.
2) Set stop loss point
There are small and expected pullbacks that can occur in the stock market from time to time. Therefore, limiting large losses …show more content…

Baring bank management flaws existed at all levels. The main reasons for bank bankruptcy are not the complexity of the derivative markets, but the behavior of the personnel is beyond the control of the management level. Even the external auditor 's code of conduct is clearly defined in the relevant rules of the audit committee in the UK, which includes the special requirements for the auditor of the bank. The lack of efficient communication between the internal auditors and external auditors, resulting in the gap between internal and external information, therefore, cannot achieve the final goal. From this situation, it is very necessary to draw lessons from the Bank of …show more content…

Must establishes and expresses clearly different department’s responsibilities.
No matter what kind of organizational form a bank takes, it is necessary to establish a clear responsibility mechanism. Managers and employees all must be clear about their duties and responsibilities. For the "matrix" organizational structure, that is, a person in charge of a number of business parts, in this situation, it must pay special attention to the clarity of responsibilities. Baring bank is undoubtedly take the matrix model, and it has three main flaws to improve:
(1) In the international banking organization system, the local branch of the management must bear the responsibility of first-line supervision. Although operational personnel cannot directly report everything to the local top management, the local top management must have a clear understanding of the business situation and its consequences.
(2) For the activities out of mainstream, the so-called innovation or new business, bank management must have pay enough attention and control

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