Purchase Solution

Moral Hazard in Baring PLC

Not what you're looking for?

Ask Custom Question

Barings PLC, a British merchant bank, was bankrupted in 1995 by Nick Leeson's (a derivatives trader for the bank) futile bets against the future level of the Nikkei index. In October 2010, Jerome Kerviel, a rogue derivatives trader for Societe Generale, a French Bank, was sentenced to prison for five years for causing the bank a 4.9 billion euro loss by betting on futures linked to European stock markets. Do you think the banking system can take steps to insure itself against the risk associated with the implicit moral hazard in these type of situations?

Purchase this Solution
Solution Summary

This solution thoroughly analyzes the Baring PLC moral hazard case. A thorough analysis and discussion is provided.

Solution Preview

In both of these situations, we have one commonality - governance. The striking question that must be asked is, "where was the governance in each of these financial institutions?" There was a clear lack of oversight, which tells us that the corporate governance and proper segregation of duties in respect to authorizing transactions was deplorable. If this had not been the case, these two incidents would have never progressed to the level that each did. With that aside, we can look at the moral hazard in these types of situations.

Let's specifically look at Nick Leeson. When we consider moral hazards, we have to first consider the individual and his or her moral system, which mainly includes the person's moral beliefs, ethics, and values. Nick worked for Barings PLC, but it was already documented that he was unable to obtain a broker's license in Singapore because parts of his application for the license were found to be fraudulent. After this, he was arrested for indecent ...

Purchase this Solution
Free BrainMass Quizzes
Lean your Process

This quiz will help you understand the basic concepts of Lean.

Income Streams

In our ever changing world, developing secondary income streams is becoming more important. This quiz provides a brief overview of income sources.

Business Ethics Awareness Strategy

This quiz is designed to assess your current ability for determining the characteristics of ethical behavior. It is essential that leaders, managers, and employees are able to distinguish between positive and negative ethical behavior. The quicker you assess a person's ethical tendency, the awareness empowers you to develop a strategy on how to interact with them.

Business Processes

This quiz is intended to help business students better understand business processes, including those related to manufacturing and marketing. The questions focus on terms used to describe business processes and marketing activities.

Production and cost theory

Understanding production and cost phenomena will permit firms to make wise decisions concerning output volume.

View More Free Quizzes
Related BrainMass Solutions

  • Baring Bank - Nick Leeson

    It is the duty of Baring to deploy only trustworthy, honest and capable floor managers on its trading floor. Baring erred in deploying Leeson. He had been caught lying!

  • Asymmetric Information: Moral Hazard

    Circumstances for Moral Hazard An act becomes a Moral Hazard in some particular circumstances.

  • Adverse selection vs. moral hazard

    Moral Hazard occurs after transaction occurs. Moral hazard means that those who insure have less incentive to reduce their exposure to risk. The differences between adverse selection and moral hazard are discussed.

  • Question about moral hazard and adverse selection

    250285 Question about moral hazard and adverse selection If banks face a problem in loan markets when bad credit risks are the ones most likely to seek bank loans, it is described as: a) moral hazard b) moral suasion c) adverse selection d) fraud

  • Finance - Moral hazard

    575691 What are the issues that are involved with the idea of moral hazard? What are the issues that are involved with the idea of moral hazard?

  • Adverse Selection versus Moral Hazard Incentive Problem

    154527 Discuss an example of adverse selection or moral hazard in business? Discuss an example of adverse selection or moral hazard in business?

  • Moral hazard

    Moral hazard refers to a risk where the private party has not entered into the contract in good faith. This is the third step in understanding the situation.

  • Moral Hazards: The Financial Institution Concept

    Best of luck in your studies! Aaron :) OTA #105647 References: Dowding, K. (2011). Moral hazard. In K. Dowding (Ed.), Encyclopedia of power. (pp. 426-427).

  • Moral Hazard: Provider Payment Paradigm

    512641 Moral Hazard: Provider Payment Paradigm Identify one moral hazard related to the provider payment paradigm. Propose a way to mitigate the hazard.

View More Related Solutions