Thoughts on Risk Management for Financial Institution Undertaking Derivative Trade------ A Comparative Analysis of Barings Bank Event and Societe Generale Event

Dacheng Qiu,Yongli Jin

doi:10.5539/ijbm.v3n10p122

Abstract

What causes Barings Bank event and Societe Generale event is a typical bank operational risk. It is the defects in internal management that lead to such a grave result. The Compliance and the Compliance Functioning Bank should be regarded as the guidance for internal risks management in financial institutions. What it emphasizes on is to make financial institutions pay more attentions on internal risks management and strict and effective executions for the sake of risks control. By designing more perfect management system, financial institutions can stop the emergence of operational risks. Besides, enhance the construction of compliance culture and devoting-to-work culture in financial institutions. Meanwhile, financial institutions should improve mutual cooperation and communication so that they can find out illegal affairs immediately.

Highlights

On 24th, Jan. 2008, Societe Generale revealed its tremendous pre-tax loss of 4.9 billion Euro caused by a trader for illegally betting on index futures
More details and development are displayed in various media. This event does not bring about a bankruptcy to Societe Generale, the tremendous loss and the similarities with Barings Bank event make people ponder over how to deal with the grave risks in financial derivative trade
Authors try to make a comparative analysis of the two events, probe into the reasons, and put forward personal ideas and suggestions for risks management in financial institutions

Summary

Introduction

On 24th, Jan. 2008, Societe Generale revealed its tremendous pre-tax loss of 4.9 billion Euro (about 51 billion RMB) caused by a trader for illegally betting on index futures. More details and development are displayed in various media. This event does not bring about a bankruptcy to Societe Generale, the tremendous loss and the similarities with Barings Bank event make people ponder over how to deal with the grave risks in financial derivative trade. Authors try to make a comparative analysis of the two events, probe into the reasons, and put forward personal ideas and suggestions for risks management in financial institutions

The comparison between Barings Bank event and Societe Generale

New suggestions for risks management development in financial institutions