Rogue Trading at Lloyds Bank International, 1974: Operational Risk in Volatile Markets

Rogue Trading at Lloyds Bank International, 1974: Operational Risk in Volatile Markets

Rogue trading has been a persistent feature of international financial markets over the past thirty years, but there is remarkably little historical treatment of this phenomenon. To begin to fill this gap, evidence from company and official archives is used to expose the anatomy of a rogue trading s...

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Bibliographic Details
Published in:Business history review 2017-04, Vol.91 (1), p.105-128
Main Author: Schenk, Catherine
Format: Article
Language:eng
Subjects:
American dollar
Analysis
Banking industry
Bankruptcy
Boards of directors
Branch banking
Clearing banks
Compliance
Crimes against
Financial institutions
Financial markets
Fraud
History
Incentives
International aspects
International banking
International finance
Market risk
Markets
Net losses
Reputations
Resignations
Risk management
Scandals
Securities fraud
Securities trading
Trading
Volatility (Finance)
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Summary:Rogue trading has been a persistent feature of international financial markets over the past thirty years, but there is remarkably little historical treatment of this phenomenon. To begin to fill this gap, evidence from company and official archives is used to expose the anatomy of a rogue trading scandal at Lloyds Bank International in 1974. The rush to internationalize, the conflict between rules and norms, and the failure of internal and external checks all contributed to the largest single loss of any British bank to that time. The analysis highlights the dangers of inconsistent norms and rules even when personal financial gain is not the main motive for fraud, and shows the important links between operational and market risk. This scandal had an important role in alerting the Bank of England and U.K. Treasury to gaps in prudential supervision at the end of the Bretton Woods pegged exchange-rate system.
ISSN:0007-6805
2044-768X