‘The Old Lady and the Alchemist’ or ‘The Collapse of Barings’
| Pages | 159-162 |
| Date | 01 March 1995 |
| Published date | 01 March 1995 |
| DOI | https://doi.org/10.1108/eb025698 |
| Author | Rinita Sarker |
The Old Lady and the Alchemist' or The Collapse
of Barings'
Rinita Sarker
Journal of Financial Crime — Vol. 3 No. 2 — Banking
First Johnson Matthey, then BCCI and now Bar-
ings.
The Bank of England's growing list of regula-
tory failures is as alarming for ordinary investors as
it is embarrassing for the Government. The Board
of Banking Supervision's (BBS) Report into the
collapse of
Barings1
chaired by the Governor of the
Bank of England, only adds to general incredulity.
Gallantly refusing to criticise The Old Lady, it
instead firmly passes the buck for the untimely
demise of Britain's oldest merchant bank on to a
28-year-old rogue trader, Nick Leeson, and a
51-year-old senior manager at the Bank of Eng-
land, Chris Thompson. If Leeson was the 'active
agent' in the £827m downfall of Barings, then the
Bank of England, as UK 'lead regulator' was cer-
tainly a passive contributor. But the Report, while
tracing a detailed web of accountability at Barings,
is striking for its failure to do the same at the Bank
of England, preferring instead to gloss over critical
issues such as why the Bank of England failed to
overhaul its supervision of financial conglomerates.
All in all, it serves as damning testimony to the
perpetuation of the 'culture of complacency'2 exist-
ing within the Bank, and does little to enhance
public confidence that lightning will not strike
twice.
Barings collapse into administration on 26th
February, 1995 shocked the financial world not
because of its size (on an international scale it is
comparatively small) but because of its illustrious
233-year-old history, family name for caution and
conservatism, and reputation for building up a
strong position in emerging markets even before
they become fashionable. In 1818, the Due de
Richelieu described Barings as 'the sixth greatest
power in Europe', which last faced the brink of
collapse in 1890 when Argentina defaulted on a
£95m loan, and it was left to the Bank of England
to come to the rescue. Unfortunately, history
failed to repeat itself on this occasion, as Barings'
losses were open-ended and the Bank of England
was not prepared to risk tax-payers' money, paving
the way for a Dutch takeover from ING.
FOOLS' GOLD
So how did one 28-year-old trader manage to
destroy what Argentina could not 150 years earlier?
Leeson's deception began with his appointment as
general manager and head trader at Barings
Futures Singapore (BFS) in 1992, in a series of
'unauthorised and ultimately catastrophic activ-
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