Barings Bank, one of Britain’s oldest banks, collapsed in 1995 following massive unauthorised trading losses and serious failures in management and supervision. Its viable business was subsequently acquired by ING.
Barings Bank - A Different Regulatory Response
The collapse of Barings Bank in February 1995 provides an important comparison with the closure of BCCI four years earlier. Barings, one of Britain’s oldest and most prestigious merchant banks, was rendered insolvent by £827 million of unauthorised and concealed trading losses accumulated by Nick Leeson in Singapore. The official inquiry found not only deception by Leeson but serious failures of management, internal controls, audit and supervision. Information capable of raising questions had reached London, internal audit warnings were not implemented, and the Bank of England itself was found to have made errors of judgement and to have shown a lack of rigour in aspects of its supervision.
Yet the response to Barings was markedly different from that applied to BCCI. Following Barings’ collapse, the British Government and the Bank of England participated in efforts over the critical weekend to find a solution. A rescue using public money was rejected, but a commercial solution was actively pursued, culminating in the acquisition of Barings by the Dutch banking group ING. The Chancellor subsequently told Parliament that the ING takeover had stabilised the group, substantially reduced potential losses and protected many of its approximately 4,000 employees.
The treatment of BCCI in July 1991 raises a contrasting question. In BCCI’s case, Abu Dhabi, which had become the majority shareholder, was already supporting a major restructuring programme involving substantial additional capital, new management, separation of impaired assets and the establishment of successor banks. According to the Bingham chronology, the shareholders had reason to believe that restructuring remained under consideration and were not warned that the Bank of England had changed course. Price Waterhouse itself expected its Section 41 report to influence the terms and structure of the reorganisation rather than lead immediately to closure.
Nevertheless, within days of senior Bank of England officials receiving the draft report, the restructuring was abandoned and coordinated closure was arranged. The UAE Central Bank-a member of the College of Supervisors-was excluded from the decisive discussions, and the Abu Dhabi shareholders were given no advance opportunity to answer the allegations before the closure decision was implemented. Bingham later identified the Bank of England as the prime mover in coordinating the closure, although he ultimately considered closure an appropriate course and found no dishonesty or bad faith. Importantly, he recognised that closure was not the only course available.
The Question of Double Standards
The comparison therefore does not depend on arguing that Barings and BCCI were identical institutions or that the circumstances of their failures were the same. They clearly were not. Barings suffered catastrophic losses arising principally from unauthorised derivatives trading by one trader, compounded by profound management and control failures. BCCI faced much broader allegations concerning accounting irregularities, concealed losses and fraud at Group level. Regulators were entitled to take those differences seriously.
The double-standard question arises instead from the regulatory response to failure.
In the case of Barings, serious fraud, concealment, inadequate management controls, shortcomings by auditors and acknowledged weaknesses in Bank of England supervision did not prevent the authorities from participating in attempts to preserve the viable business and facilitate its transfer to a new owner. The failure was generally presented as a regulatory and management lesson from which the City should learn. Even in Parliament, the Chancellor emphasised that most Barings employees had been working successfully in what he described as a good bank and had nothing to do with the wrongdoing in Singapore.
BCCI received a very different institutional response. Rather than allowing the proposed restructuring and substantial shareholder support to be tested, the international closure was coordinated rapidly and without prior consultation with the majority shareholders or the UAE Central Bank. The subsequent public narrative came to characterise BCCI itself as institutionally criminal, with consequences not only for its owners and senior management but for thousands of employees around the world who had no involvement in the alleged wrongdoing. The Bingham material confirms that, so far as the UK region was concerned, the Bank of England had encountered nothing in its supervision that caused serious concern, while several of the wider allegations later associated with BCCI were not supported by information then held by UK law-enforcement authorities.
That contrast is difficult to overlook. Barings was treated as a venerable British institution brought down by fraud and failures of control, whose viable operations and innocent employees should, where possible, be preserved. BCCI was treated as an institution of the Third World whose alleged wrongdoing justified shutting down the whole organisation before an already advanced restructuring supported by its majority shareholders had been allowed to run its course.
Seen from this perspective, the issue is not whether BCCI should have escaped investigation or accountability. Serious wrongdoing, wherever established, required investigation and action. The more fundamental question is whether the same supervisory philosophy-preserve viable operations, isolate wrongdoing, protect innocent customers and employees, and seek restructuring where credible financial support exists-was applied consistently irrespective of the ownership, origins or identity of the institution.
The contrasting treatment of BCCI in 1991 and Barings in 1995 provides legitimate grounds for asking whether it was.
Also read:
- Report of the Board of Banking Supervision Inquiry into the Circumstances of the Collapse of Barings (July 1995), Bank of England / HM Treasury
- Double Standards – The Untold Story
