What Was Barings Bank?

Barings Banks was a British merchant bank that collapsed in 1995 after a trader in its Singapore office, 28-year-old Nick Leeson, lost about $1.3 billion making unauthorized trades. Founded in 1762, Barings was one of England's oldest merchant banks and at one point, even Queen Eꦜlizabeth II had an account with it🅰.

Understanding Barings Bank

Barings was among the world's largest banks and was considered one of its most stable. However, thanks to unauthorized speculation in futures contracts and other speculative transactions, the bank abruptly ceased operations on Feb. 26, 1995.

The direct cause was its inability to meet its cash requirements following those u𝔍nauthorized ꦍtrades. Efforts by the Bank of England to arrange a rescue package could not avert the inevitable collapse.

Barings Heyday

In the period before the bank's collapse, Barings was making money using 澳洲幸运5开奖号码历史查询:arbitrage, the practice of buying and selling assets simult🌱aneously to exploit the brief and tiny price discrepancies for the same asset on differe♚nt exchanges.

For many years, it also profited from investments in foreign economies. One of the greatest decis🍷ions Barings made as a bank was to not invest heavily in Germany after World War I, saving the bank an enormous amount of money as the German economy faltered.

The bank had been engaged in other significant geopolitical moves as well, financing the Louisiana Purchase in 1803 and supporting the United States during the War of 1812.

Barings Bank Collapse

澳洲幸运5开奖号码历史查询:Nick Leeson has been described as a ro𒐪gue trader, operating without supervision or oversight. At the time of his epic loss, Leeson was assigned to the bank's 澳洲幸运5开奖号码历史查询:arbitrage trade, buying and selling Nikkei 225 futures contracts in both the Osaka Securities Exchange in Japan and the Singapore International Monetary Exchange in Singapore.

However, instead of initiating simultaneous trades to exploit small differences in price between the two maꦯrkets,🐽 he held his contracts, hoping to make a larger profit by betting on directional moves of the underlying index.

Making matters worse, Leeson ღhid his losses with accounting tricks. Had the bank discovered this earlier, it would have taken large but not devastating🅰 losses and remained solvent.

The bank was declared insolvent less than a week after Leeson's trading losses were finally discovered. Leeson was arrested and sentenced to six and one-half years in a Singapore prison. He was released in 1999 after a diagnosis of colon cancer.

Leeson survived his bout with cancer and later worked as a corporate private investigator. He also became a frequent speaker on the lecture circuit.

Barings Bank Acquisition

The Dutch bank ING Group, purchased Barings Bank in 1995 for the nominal sum of £1, assuming all of the bank's liabilities and forming the subsidiary ING Barings. A few years later, in 2001, ING sold the U.S.-based operations to another Dutch bank, ABN Amro, for $275 million.

The Barings name lives on as an investment management firm owned by Massachusetts Mutual Life Insurance Co. ING's European banking division absorbed the rest of ING Barings. It is now known simply as Barings.

Hollywood Movie

In 1996, while in prison, Nick Leeson released his autobiography entitled Rogue Trader: How I Brought Down Barings Bank and Shook the Financial World, detailing his𒊎 career at Barings. A fictionaliz🐎ed version of the book was made into a film starring Ewan McGregor.

Lessons From the Barings Bank Collapse

The collapse of Barings sent a shock wave through the investment banking and trading industry. The lack of oversight of Leeson's activities and the sheer size of his losses led to investigations into banking practices.

The simple lesson learned was that traders should not manage theiᩚᩚᩚᩚᩚᩚ⁤⁤⁤⁤ᩚ⁤⁤⁤⁤ᩚ⁤⁤⁤⁤ᩚ𒀱ᩚᩚᩚr own accounting books. New layers of security ensured that a trader was not able to adjust their trades after they were placed. Trades in derivatives are now placed through a clear🐻inghouse, adding a record of the trade in the hands of a third party.

Despite the new regulation and oversight, a Societe Generale trader named Jerome Kerviel manage🦩d to rack up about five times Leeson's losses in 2008.

The Bottom Line

Barings Bank was one of the world's most powerful financial institutions. However, a single trader bankrupted the institution, and it ceased operating in 1995. The lack of oversight of Nick Leeson has taught a valuable lesson to banks all over the world—keep a watchful eye on your traders.