What is 'Barings Bank'

Barings Banks was a British merchant bank that collapsed in 1995 after one of its traders, 28-yeaer-old Nick Leeson operating in its Singapore office, lost $1.3 billion in unauthorized trades.

BREAKING DOWN 'Barings Bank'

Founded in 1762, Barings was among the largest and most stable banks in the world. However, thanks to unauthorized speculation in futures contracts and other speculative dealings, it ceased operations on February 26, 1995. The direct cause was its inability to meet its cash requirements following those unauthorized trades. Even efforts by the Bank of England to arrange a rescue package could not avert the inevitable collapse.

Leeson's reputation since then was one of a rogue trader, operating without supervision or oversight. At the time of the loss, he was assigned to an arbitrage trade, buying and selling Nikkei 225 futures contract 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 pricing between the two markets, he held his contracts, hoping to make a larger profit by betting on directional moves of the underlying index.

Making matters worse, Leeson hid is losses with accounting tricks. Had the bank discovered this earlier, it would have taken large but not devastating losses and remained solvent. Unfortunately, the firm was declared insolvent less than a week after Leeson's trading losses were finally discovered.

After this episode, Leeson was arrested and sentenced to six and one-half years in a Singapore prison. However, he was released in 1999 after a diagnosis of colon cancer.

Acquisition

The Dutch bank ING Group, purchased Barings Bank in 1995 for the nominal sum of £1.00, assuming all of Barings' 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. ING's European banking division absorbed the rest of ING Barings.

The Barings name lived for a while in only in two divisions, both of which were subsidiaries of other companies. Baring Asset Management (BAM) is now part of MassMutual. BAM's Financial Services Group became part of Northern Trust, until taken private in 2016.

Hollywood

In 1996, and while in prison, Nick Leeson released his autobiography entitled, "Rogue Trader: How I Brought Down Barings Bank and Shook the Financial World," in which he detailed his acts leading to the collapse of Barings. The book was later made into a fictionalized film starring Ewan McGregor as Leeson.

RELATED TERMS
  1. Blow Up

    Blow up is a slang term used to describe the very public and ...
  2. Bear Straddle

    A bear straddle is a speculative options trading strategy through ...
  3. Bare Trust

    A bare trust is a type of trust that provides beneficiaries with ...
  4. Bare Walls Coverage

    Bare walls coverage is a type of insurance coverage that applies ...
  5. Merchant Bank

    A merchant bank is a bank that deals mostly in (but is not limited ...
  6. Singapore Exchange - SGX

    The Singapore Exchange is a full service equities, fixed income ...
Related Articles
  1. Trading

    Trading's 6 Biggest Losers

    These "rogue traders" are famous for their billion-dollar mistakes.
  2. Insights

    The World's 10 Most Famous Traders of All Time

    Here is a review of the most famous and infamous traders in history and how they affected the world.
  3. Trading

    How To Prevent Rogue Trading

    These are the ways rogue trading affects banking, financial regulations and investors.
  4. Investing

    MassMutual Financial Group: Investment Manager Highlight (DLHYX, MBCSX)

    Learn about Massachusetts Mutual Life Insurance Company (MassMutual) and its investment subsidiaries. MassMutual offers insurance products and mutual funds.
  5. Insights

    The 10 Must-Watch Movies For Finance Professionals

    Finance makes for great cinema. Here are 10 of the best offerings by Hollywood on the subject.
  6. Investing

    EWS: iShares MSCI Singapore ETF

    Learn more about BlackRock Advisor's iShares Singapore MSCI exchange-traded fund, which looks to mirror the holdings and yield from Singapore markets.
  7. Personal Finance

    The Evolution of Banking Over Time

    Discover how the evolution of banking has changed the business model. Find out how this system of money management developed into what we know today.
  8. Personal Finance

    Roles and Functions of Modern Investment Banks

    Discover the different roles and functions that surrounds investment banks, and the role they have played throughout the evolution of the modern system.
  9. Trading

    Singapore Surprises by Easing Monetary Policy

    The Monetary Authority of Singapore (MAS) eased its exchange-rate-based monetary policy, stating that the economy had not grown as expected.
RELATED FAQS
  1. What is the difference between investment banks and merchant banks?

    Merchant banks and investment banks, in their purest forms, are different kinds of financial institutions that perform different ... Read Answer >>
  2. What is the banking sector?

    Learn why the banking sector is a vital industry to our economy, what it does to drive the economic growth and understand ... Read Answer >>
  3. How does investment banking differ from commercial banking?

    Discover how investment banking differs from commercial banking, the responsibilities of each and how the two can be combined ... Read Answer >>
  4. What's the difference between investment banks and commercial banks?

    Understand the principal differences between investment banks and commercial banks, and the areas of banking services that ... Read Answer >>
  5. What factors are the primary drivers of banks' share prices?

    Bank share prices are driven by the same forces as any other shares including market sentiment, expectations about the future ... Read Answer >>
Trading Center