In recent years, we have seen a series of staggering losses sustained by large multinational banking organizations. The Daiwa Bank ( Daiwa ), Barings Bank ( Barings ) and the Bank of Credit and Commerce International ( BCCI ) are three prominent examples. Each of these institutions suffered losses in excess of 1billionthroughunauthorized,fraudulentorunlawfulconductbymanagement.Ineachoftheseinstitutions,thereexistedakeybankofficialwhobrokethroughwhatmightbeconsideredabilliondollarbarrier.AtDaiwaBank2˘7sNewYorkBranch,therewasToshihbeIguchi,itsSeniorVicePresidentandbondtrader.BaringsBankhadNickLeeson,afuturesandcommoditiestrader.InthecaseofBCCI,wehadAghaHasanAbedi,thePresident,andhistrustedandcapabledeputy,SwalehNaqvi.Theactionsoftheseindividualssignificantlyaffectedtheoperationofeachofthesebanks.BCCIwascompletelyshutdownandsubsequentlyliquidated.DaiwawasforcedtoleavetheUnitedStates.Baringsbecameinsolvent,butwaseventuallyrescuedinanacquisitionbyaDutchbankholdingcompany,ING.Morerecently,aJapanesemultinationalcorporation,theSumitomoCorporation,announcedthatasinglecoppertrader,YasuoHamanaka,hadconcealedover2.6 billion dollars in copper trading losses for a period of tenyears.\u27 The recurrence of these events reveals a significant problem. The recurrence also suggests that it would be a mistake to regard these events as unique situations attributable only to the frailty of the character who caused them to happen.
The magnitude of the losses involved is most striking. It was also unsettling to learn that neither external bank regulators nor internal managers saw the concealment of the losses until they reached such astronomical proportions.In each case, the fraud was aided by the global structure of these banks.
There are many lessons to be learned from these incidents. One major lesson we would like to impart-the importance of being honest. Financial systems, financial markets and financial institutions are based upon trust and confidence. Bank supervisors need to continually assess the sufficiency of their methods. Banks, in turn, need to focus on greater cooperation and compliance with supervisors. Further, the process of supervision will not function effectively if the process is adversarial. Instead, bank supervisors need to be able to rely-for practical reasons-on the veracity of the banks whom they supervise