The Collapse of Barings
By Stephen Fay
W. W. Norton, 1997, 310 pp.
Transatlantic fallout from the near collapse of the English merchant bank Baring Brothers in 1890 helped lay the groundwork for the creation of the Federal Reserve System. The collapse of Barings in 1995 may similarly presage major changes in the regulatory framework for financial institutions. Drawing on official reports, court records, and numerous interviews, journalist Fay gives a detailed account of the frenzied environment of derivatives trading in the early 1990s, of the events that led to the bankruptcy of Barings after 233 years, and of the subsequent investigations and recriminations.
It is a story well told. The plot's theme concerns who was ultimately responsible and whether, as trader Nicholas Leeson hinted, there was a conspiracy within Barings' senior management. Fay concludes that while Barings' management, the Bank of England, and the Singapore exchange were all too tolerant, even casual, in their supervision, Leeson bears full responsibility for the deceptions that resulted in losses of $1.4 billion. A novel element points to the initial regulatory tolerance and subsequent investigative bias of the Singapore authorities, resulting possibly from their eagerness to build up Singapore as an international financial center. There are object lessons here for many, but especially for controllers within financial firms, following the rapid growth in geographical diversity and substantive complexity of their business.