Case: The Barings Collapse (A): Breakdowns in Organizational Culture & Management

Resources

Read/review the following resources for this activity:

• Case: The Barings Collapse (A): Breakdowns in Organizational Culture & Management
• Lecture
• Minimum of 1 Internet source

Introduction

Gives an overview of the collapse of a prestigious financial institution and the organizational failings that contributed to it. Outlines the history of Barings Bank, the creation of its securities business, particularly in the Far East, and how Nick Leeson, a Barings trader in Singapore, was able to run up massive losses in derivative trading, which caused the collapse of the bank. Identifies the cultural clashes, remuneration system, control failings, and other issues that severely weakened the effectiveness of the matrix management system, an important contributor to the collapse.

Activity Instructions

Respond to the following:

1. Describe a typical employee of BB&Co and BSL. How was Leeson's behavior driven by the BSL culture?

2. Did the bonus scheme contribute to Baring's downfall? If so, how?

3. How did Nick Leeson manage to lose 843 million pounds in just over two and a half years?

4. How did the formation of BIB add to the problems?

5. What were the problems with Baring's matrix management system and how did they contribute to the collapse of the bank?

When analyzing a case study, all the used references (including the Internet) should appear within the text [e.g. (John Doe, 2008)] and on the references page. You are expected to apply all applicable course concepts, as well as those specific to the chapter from which the case or paper topic is drawn. The analysis should also contain a summary of related current developments obtained through searches on the Internet.

Writing Requirements (APA format)

• 4 pages (approx. 300 words per page), not including title page or references page
• 1-inch margins
• Double spaced
• 12-point Times New Roman font
• Title page with topic and name of student
• References page (minimum of 1 Internet source)

Introduction

Chapter 7 first analyzes the banking industry given that banks are a crucial part of the financial sector in EFMs. The reasons for the extraordinary number of bank failures in the1980s and 1990s, is then examined. Why are banks so prone to large losses? Three reasons are suggested to explain why banks make poor decisions, which ultimately lead to these large losses. One is when loans are given to people who have connections with the bank (like owners, directors, and companies enjoying special relationships with the bank) or what is referred to in the text as 'connected lending'. Second, is the implicit problem of moral hazard associated with bank lending in EFMs. For a bank with low net worth, making another highly risky loan is a no-brainer - if it turns out to be a bad loan and the bank becomes insolvent there is bound to be a government bailout. Third, the growth of efficient securities markets along with the revolution in information and communication technologies has made banks somewhat redundant and thus unprofitable. The question that needs to be asked is: how does a country get its banking system right and avoid costly bailouts.