THE BARINGS CRISIS: SOME LESSONS FOR THE MANAGEMENT OF TRADING RISKS IN FINANCIAL INTERMEDIARIES
| Date | 01 March 1995 |
| DOI | https://doi.org/10.1108/eb024844 |
| Published date | 01 March 1995 |
| Pages | 211-221 |
| Author | MICHAEL TAYLOR |
| Subject Matter | Accounting & finance |
THE BARINGS
CRISIS:
SOME
LESSONS
FOR THE
MANAGEMENT
OF
TRADING RISKS
IN FINANCIAL
INTERMEDIARIES
Received:
10th
May,
1995
DR
MICHAEL TAYLOR
DR
TAYLOR
IS
CURRENTLY PRINCIPAL LECTURER IN
FINANCIAL SERVICES REGULATION AND
COURSE DIRECTOR OF THE MASTERS
PROGRAMME IN FINANCIAL SERVICES
REGULATION AT LONDON GUILDHALL
UNIVERSITY. HE SPENT OVER FIVE
YEARS AT THE BANK OF ENGLAND,
WHERE HE WORKED VARIOUSLY IN
BANKING SUPERVISION POLICY AND IN
MAINTAINING THE BANK'S LINKS WITH
OTHER FINANCIAL SERVICES
REGULATORS. DURING HIS TIME AT
THE BANK HE SERVED AS A MEMBER OF
THE FISHER GROUP, REFERRED TO IN
THIS PAPER, WHICH LAST YEAR
PUBLISHED A DISCUSSION DOCUMENT
RECOMMENDING THAT FIRMS ACTIVE
IN
THE DERIVATIVES MARKETS
DISCLOSE INFORMATION ABOUT THEIR
RISK
MANAGEMENT PRACTICES. DR
TAYLOR WAS EDUCATED AT OXFORD
UNIVERSITY, WHERE HE ALSO TAUGHT
FOR
THREE YEARS BEFORE JOINING
THE
BANK.
ABSTRACT
The collapse of Barings
Bank in
February
this
year
provided
a stark
illustration
of
the need for adequate systems
and
controls
in managing trading
risks.
This
paper
reviews
the
current advice
on best practice from
regulators,
industry
groups
and government agencies. It
emphasises
the
importance
of
strong
cor-
porate
governance,
the
need
for a
strong
risk
management
infrastructure,
and
sug-
gests
ways in which the
incentives
for
excessive risk-taking generated by existing
systems
of
bonus payments
might be cor-
rected.
The
paper
also recommends each
firm
perform
an annual
risk control assessment
under the direction of its audit
committee.
It concludes
by arguing that
enhanced
public disclosure
has an
essential role
to
play
in
providing
an
additional discipline
on
the
board
and
senior management
to
ensure
the
adequacy
of
systems
and
con-
trols.
211
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