Barings Bank’s Failure

Barings Bank’s Failure.
When establishments, businesses and organizations are prosperous and very successful, barely anyone anticipates that someday they would fall down. Instead, people tend to envision a more dynamic, booming and more successful business whose position would seem stable that no problem can shake it down. This is exactly the case with the Barings Bank. After its share of success, the bank failed due to organizational architecture.

The debacle of the Barings Bank, also called the “Queen’s Bank” (FundingUniverse, n. d.), became one of the hot topics when it comes to banking, finance, economics and management. The case shows an example of how one powerful company can be ruined by its shortcomings.

Haven’t Found The Relevant Content? Hire a Subject Expert to Help You With
Barings Bank’s Failure
Post Your Own Question And Get A Custom Answer
Hire Writer

The Barings Bank achieved success for a long time and was even respected as it was the United Kingdom’s oldest merchant bank (Sungard, 2009). It was established by a team of brothers, Francis and John, in London during the 1700s. During the Napoleonic Wars, the company financed military campaigns in Britain and helped France to recover financially.
The company was also known for assisting America in buying Louisiana from France. Prosperity also rained down when the bank went into international trade (FundingUniverse, n. d. ). Barings Bank has $900 million in capital, but its share of success suddenly went to a halt in 1995 when it suffered from unauthorized trading losses which amounted to $1 billion (Sungard, 2009). Some experts say that the losses showed the ineffective controls and inappropriate incentives within the company (Hentschel and Smith, 1996).
Others think that the demise was a result of financial risk management that went wrong (Riskglossary. com, 1996). For whatever reason, the person responsible behind the bank’s demise was Nick Leeson, a trader promoted as general manager in the Singapore branch. Although he was capable of making millions for the company, he got involved in unauthorized trading activities that initially went unnoticed because he handled trading and back office functions (Sungard, 2009). Leeson traded and made mistakes which the bank’s management did not notice. The more bets Leeson made, the more money he lost.
This indicates that Leeson, who has gained much power and authority, has acted outside the bank’s official authority and worked not in the best interests of the bank’s owners (Hentschel and Smith, 1996). This kind of problem occurs in different settings wherein employees, shareholders and senior management have different interests. It occurs when an agent such as Leeson enjoys private incentives to stray from things that would maximize the company’s value. Also, the structure of the organization can affect employee’s incentives. Thus it can worsen or control the problems.
Three facets of organizational architecture that have effects are reward systems, decision rights and control systems. In reward systems, a compensation package must be readily available and must have “strong incentive components. ” In Leeson’s case, however, the objective is to generate profits and not to stabilize firm value. Compensation based on the contract’s payoff can have bad side effects. Decision rights, on the other hand, indicate that decision rights must be allocated to treasury employees so that internal controls at low cost will be improved.
However, traders and dealers like Leeson have extensive decision rights over their positions. Meanwhile, control systems in the Barings Bank case failed because a difficulty in monitoring within the company existed. The senior management at Barings Bank claimed that they were unaware of Leeson’s activities. To prevent such cases there should be strict control and supervision on business activities. The company could have set position limits so that traders and dealers will not be able to abuse their positions. Another shortcoming of Barings Bank was that it did not separate settlement and trading responsibilities.
Otherwise the company could have monitored all sorts of activities because the separation can facilitate agreement with the set position limits (Hentschel and Smith, 1996). The failure of Barings Bank was attributed to its organizational architecture. Nick Leeson, a trader whose losses caused the bank to go into bankruptcy, worked to generate profits. The power and authority that came with his position blinded him into making bets that he did not win. The bank, on the other hand, failed to make careful control and monitoring over the activities done on its part. References FundingUniverse.
(n. d. ). Barings PLC. Retrieved January 8, 2009, from http://www. fundinguniverse. com/company-histories/Barings-PLC-Company-History. html Hentschel, L. and Smith, C. W. (1996). Derivatives regulation: Implications for Central Banks. Retrieved January 8, 2009, from http://www. simon. rochester. edu/fac/Hentschel/PDFs/DRICB. pdf Riskglossary. com. (1996). Barings debacle. Retrieved January 8, 2009, from http://www. riskglossary. com/link/barings_debacle. htm Sungard. (2009). Barings Bank. Retrieved January 8, 2009, from http://www3. sungard. com/bancware/default. aspx? id=4704

Barings Bank’s Failure

Calculate the price of your paper
Pages (550 words)
Approximate price: -

Why Hire a Professional Essay Writer from MyHomeworkGeeks

Quality Urgent Essays

Domyhomeworkk online platform provides the best essay writing service ever received elsewhere, thanks to our professional essay writers. Experience gained in the 10+ years of being in the assignment writing industry is also an added advantage.

Professional and Experienced Academic Writers

A lot is done to maintain us as the best essay writing service provider. Besides owning a degree from a recognized university, a writer must pass the rigorous tests we take them through before they are considered eligible to offer urgent essay help on our website.

Affordable Urgent Assignment Help

Who said a reliable website should not be cheap also? While it is human nature to associate prices with quality, that does not always work. At, we guarantee you cheap and urgent essay help without compromising the quality.

24/7 Available Urgent Essay Writing Service

Whether it is a ‘write my essay for me cheap’ or ‘edit my essay’ order you want to request, always feel free to reach us at any time of the day. Our experts work in shifts to ensure that you access urgent essay writing services at any time of the day.

Plagiarism Free Essays Online

The punitive measures that come with plagiarized content are so harsh, and we understand that. We consequently ensure to write each client’s papers from scratch no matter how urgent the essay is. To acknowledge borrowed content, our quick writer references and cites the work.

Wow Customer Support 24/7

Our support agents are available 24 hours a day 7 days a week and committed to providing you with the best customer experience. Get in touch whenever you need any assistance.

Try it now!

Calculate the price of your order

We'll send you the first draft for approval by at
Total price:

How it works?

Follow these simple steps to get your paper done

Place your order

Fill in the order form and provide all details of your assignment.

Proceed with the payment

Choose the payment system that suits you most.

Receive the final file

Once your paper is ready, we will email it to you.

Our Services

So much stress and so little time? Take care of yourself: let us help you with your tasks. We offer all kinds of writing services.


Custom Essay Writing Services

No matter what kind of academic paper you need and how urgent you need it, you are welcome to choose your academic level and the type of your paper at an affordable price. We take care of all your paper needs and give a 24/7 customer care support system.


Admission and Business Papers

An admission essay is an essay or other written statement by a candidate, often a potential student enrolling in a college, university, or graduate school. You can be rest assurred that through our service we will write the best admission essay for you.


Editing and Proofreading

Our academic writers and editors make the necessary changes to your paper so that it is polished. We also format your document by correctly quoting the sources and creating reference lists in the formats APA, Harvard, MLA, Chicago / Turabian.


Revision Support

If you think your paper could be improved, you can request a review. In this case, your paper will be checked by the writer or assigned to an editor. You can use this option as many times as you see fit. This is free because we want you to be completely satisfied with the service offered.

Have a homework question? Get help from verified tutors now!