Bank Sector Crisis: The Case of Barings Bank and Lehman Brothers Holdings Inc: An Abridged Version

Bank crisis is mostly traced to decreases in value of banks’ assets. This could occur in one of many ways, or a combination of several instances; when loans turn bad and underperform (credit risk); when there are excess withdrawals over available funds (liquidity risk); and rising interest rates (interest rate risk). Bad credit management, market inefficiencies and operational risk are among a host others that trigger panic withdrawals because customers suspect a loss of investment. This brief article restates parts of extant literature on reasons Barings Bank and Lehman Brothers failed, and lessons learnt thereafter. Peculiar to the failure of Barings Bank and Lehman Brothers Holdings Inc., array of factors spanning from lack of oversight role relative to employee unethical conduct in the course performing assigned duties, to management’s involvement in dubious accounting practices, unethical business practices, overindulging in risky and unsecured derivative trade. To guide against similar unfortunate bank collapse in the near future, this piece suggests an enhanced communication among international regulators and authorities that exercise oversight responsibilities on the security market. National bankruptcy laws should be invoked to forestall liquidity crisis so as to prevent freezing of margins and positions of solvent customers.