233 Year Old Bank goes Bust!

On February 26, 1995, Barings, the oldest bank in Britain, announced it was seeking bankruptcy protection after losing nearly one billion dollars in a stock gamble. At the time Barings went under, the bank held assets for Queen Elizabeth, some $100 million according to Time magazine.

In late 1994, the chief trader at Baring's Singapore office began betting big on Japan's Nikkei market. Then disaster struck. An earthquake hit Kobe, Japan, and on January 23, 1995, the Nikkei plunged more than 1000 points.

Barings Bank lost big money. But instead of cutting his losses, Baring's Singapore trader doubled his investment, apparently hoping that the Nikkei would rebound. It didn't. As the Nikkei continued to plummet, Baring's London office put up nearly $900 million to support its failing position on the Singapore investments. Finally, they ran out of capital and declared bankruptcy.

How could one 28 year old trader in Singapore lose nearly a billion dollars and ruin a 233-year old British bank? According to Time, the problem was lack of supervision.

London allowed the [Singapore Trader] to take control of both the trading desk adn the backroom settlement operation in Singapore. It is a mix that can be - and in this case was - toxic...For a trader to keep his own books is like a schoolboy getting to grade his own tests; the temptation to cheat can be overwhelming, particularly if the stakes are high enough.

Without accountability, temptation becomes all the more tempting. Accountability protects us from ourselves.

Source: 750 Engaging Illustrations, Craig Larson, page 12