BARINGS BARED

Barings Bank, founded in 1762 as the John and Francis Baring Company,  was declared insolvent on the 26^th February 1995, and appointed administrators began managing the finances of Barings Group and its subsidiaries. 

Sir Francis Baring (left), with brother John Baring

And son-in-law Charles Wall, 

in a painting by Sir Thomas Lawrence 

The same day, the Board of Banking Supervision of the Bank of England launched an investigation led by Britain's Chancellor of the Exchequer; their report was released on 18 July 1995. Lord Bruce of Donington, in the House of Lords’' debate on the report, with masterful irony (a wonderful piece of performed writing) said:

“Even the provisional conclusions of the report are interesting. I should like to give them to the House so that we may be reminded what the supervisory body itself decided at the end of such investigation as it was able to make. It stated on page 250:

"Barings' collapse was due to the unauthorised and ultimately catastrophic activities of, it appears, one individual (Leeson) that went undetected as a consequence of a failure of management and other internal controls of the most basic kind".

The words I venture to emphasise to your Lordships are these:

"as a consequence of a failure of management and other internal controls of the most basic kind".

Noble Lords who have read through paragraph 14.2 of the report will be aware that it specifies these deficiencies. The report states:

"Management teams have a duty to understand fully the businesses they manage".

Really! They really have to understand the businesses! I would have thought that it was an elementary assumption to make that the controllers should understand the nature of the businesses they are trying to control. The next requirement is this:

"Responsibility for each business activity has to be clearly established and communicated".

Hooray for that! I wonder how businesses in this country manage in their generality to continue without that qualification. The third requirement is:

"Clear segregation of duties is fundamental to any effective control system".

Tut, tut! We are now treating the real elementum of the whole art and science of management, and it needs to be repeated here. The report continues:

"Relevant internal controls, including independent risk management, have to be established for all business activities".

Hooray for that! These are matters of plain, ordinary common sense. One does not need to be an accountant or a management consultant to be aware of that. Finally:

"Top management and the Audit Committee have to ensure that significant weaknesses, identified to them by internal audit or otherwise, are resolved quickly".

Well, well, well! These are all respects which this control body finds were absent from Barings. Do noble Lords really know what is being said? It is being said that Barings ought not to have been authorised bankers from the beginning, because any business — I do not care whether it is a whelk stall (one must not insult whelk stall owners in the context of this catastrophe) or what — knows that these are the basic conditions for the continuance of the business. It seems to me that the Bank of England ought never to have authorised this concern without verifying that all these conditions were in”

An extraordinary outcome after 233 years of trading.