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Lord Mackay of Ardbrecknish: My Lords, I can certainly confirm that the chief dealer in the overseas subsidiary of Barings in Singapore appears to be the individual who brought about this problem, as I have already said. I should perhaps say that clearly the checks

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and balances in place at the time will be, and have been since this matter was exposed towards the tail end of last week, of considerable interest to Barings and the people who are to investigate.

Lord Hooson: My Lords, following the question asked by the noble Lord, Lord Boyd-Carpenter, is it correct that the dealer in question was only 26 years of age? Bearing in mind the awesome power he had over high risk investment, is that a unique situation in the banking industry?

Lord Mackay of Ardbrecknish: My Lords, my briefing does not contain a confirmation of the age of the individual concerned. However, I believe I saw his age stated in the newspapers as being either 26 or 28 and I have no reason to doubt that. I believe that the people who work in that rather tense environment are fairly young. Whenever I see television pictures of the floors of stock exchanges, the dealers seem to me to look, dare I say, like policemen—and getting younger by the year.

Lord Shepherd: My Lords, the Minister may be correct in that it is relatively young people carrying out those operations. But would he not agree that they are responsible to the management within whichever organisation employs them? Though it may be true that the individual concerned was a rogue, I hope nevertheless that the inquiry will be looking at the systems of control and discipline within Barings, particularly in Singapore and perhaps in London, to see how it was possible for one trader on his own to bring a bank of this repute to its knees in such a short time. It is not simply a question of how a rogue could do it, if he was a rogue, but how it is possible that he was able to do it within our banking system.

4.15 p.m.

Lord Mackay of Ardbrecknish: My Lords, the Board of Banking Supervision, in its investigation, will be asking exactly the questions posed by the noble Lord; that is, how it happened, how such unauthorised transactions were able to take place and how they could remain undetected by the checks and balances one would expect to be in place.

The Earl of Halsbury: My Lords, I pointed out to the House on an earlier occasion that nowadays people engaged in this class of transaction mature in their mid-20s and are burnt out by 35. They cannot operate as fast as they are required to operate. The rate of information exchanged, with all the computer accessories and so forth, must involve an uprating of the rate at which information reaches the management. At this time it is not necessarily the fault of any specific management; this had to happen at some time, somewhere, before we learnt our lesson.

Lord Mackay of Ardbrecknish: My Lords, I am sure that the noble Lord makes a valid point in relation to the speed and the 24-hour nature of transactions of all kinds around the world. In regard to somebody being able to do naughty things, in the past it would have been

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a slower operation. Nowadays, with the use of modern super-highways and the like, it can be done readily and quickly.

Lord Boardman: My Lords, my noble friend referred to the willingness on the part of banks in the City of London to inject initial capital if it had been possible to cap the liability. He referred to the difficulty of capping because of the uncertainty. Will my noble friend consider whether it will be possible at an early date to agree a cap on the basis that the certainty of a sum promised today with additional capital may be better than the uncertainty of what can be obtained from a bank in default? In that event, does he consider that the City of London may still be willing to put in additional capital or underwrite the debts rather than suffer the far greater losses that may flow from default in the City?

Lord Mackay of Ardbrecknish: My Lords, I am not a great expert in these matters. I should have thought that, with the administrator now in place, the die has been cast in that regard. As I expressed earlier to the House, the problem was the unlimited exposure. Added to that—perhaps I did not underline this point sufficiently—was the fact that a decision had to be arrived at before the opening of the Far East markets late yesterday evening. That meant that people were fighting against the clock as well as against the problems of the unlimited liabilities.

Lord Mishcon: My Lords, perhaps I may first emphasise a point made by my noble friend Lord Peston. It is apparent from the questions and comments that have arisen in your Lordships' House on this tragic matter that this House is possessed of an expertise and wisdom which, for the sake of the nation, make it important that we should have the opportunity to discuss the matter in full when the Government are prepared to make a further Statement. Having said that, can the Minister say whether the investigation into fraud is being left to the Singapore authorities or whether, with our great experience, we are sending an assistant body of people from this country to help?

Lord Mackay of Ardbrecknish: My Lords, the principal investigation on the ground will be undertaken in Singapore. The point was underlined in the Statement that these events happened on the other side of the world, involving regulatory authorities and subsidiaries that exist there. Therefore, while the investigation set in train by my right honourable friend will be thorough and complete in every detail, much of the work will have to be done on the other side of the world, especially with regard to establishing what happened on those stock exchanges.

I was asked earlier whether the administrator could renegotiate contracts. I believe that that was the point of the question asked by my noble friend Lord Boardman. I am advised that he can renegotiate contracts on behalf of the bank. In relation to the debate and the report back, in the Statement I read to the House my right honourable friend said that he would report back to the House at the earliest opportunity. I have little doubt that, if he does that via a Statement, I shall be asked to come here and

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repeat it. I shall pass on to the usual channels the suggestion of a debate. However, I do not think that there is any point in debating the matter until the report is received.

Lord Bruce of Donington: My Lords, I support my noble friend Lord Mishcon in requesting that some time should eventually be allotted to the House so that we can discuss this matter further. Your Lordships will be aware that over the past two years there has been contemplated in many circles—by no means confined to any one party—the desirability of broadening and extending the role of bankers within our society and indeed among countries. Will the noble Lord please take note that my reticence on this subject at the moment remains in abeyance for the time being and that when the time does arrive perhaps the circumstances will justify my suspicion that bankers in general are not the last repositories of human wisdom?

Lord Mackay of Ardbrecknish: My Lords, I think I get the drift of the noble Lord's argument. Perhaps we can at least agree that all this and everything else with regard to our knowledge of the world proves that bankers are only human as well.

The Earl of Lauderdale: My Lords, my noble friend referred to the duration of the uncapped liabilities. Is it a matter of days, weeks or months?

Lord Mackay of Ardbrecknish: My Lords, I am not able to quantify the time. My understanding is that it is more days than weeks. It may be months, but it certainly is not a very long time. Some of these things have come home to roost, so to speak, already. The young gentleman concerned has not been at this business for very many weeks. I think it will take a few months to quantify, but not very many.

Lord Desai: My Lords, perhaps it needs to be said, because no one else has said it—although my noble friend Lord Peston implied it—that we had a very similar situation with BCCI. I said at the time of the BCCI debate that the Bank of England is not very good at regulation whatever else it may be good at. I do not think it is very good to say after the event that someone far away did this and we did not know it. If we operate in round the clock global markets which are technologically advanced there should already be in place systems of control both at the merchant bank level and at central bank level which can foresee the problem. This problem did not arise in the past week. From what we can gather it has been going on for about two weeks. The person concerned has been buying in. He has been operating in put rather than call options for the past week. He has been adding to his liabilities. That should have been noticed long ago. He has bought around 15,000 contracts. If he has bought 15,000 contracts, why was no one aware of it? What systems of control does the Bank of England have to check the exposure of clearing banks and merchant banks to such problems? Every time this happens everyone says, "What a marvellous response we have made". It is usually said after the event and a bank has failed. I worry that if a clearing bank is exposed to such a risk—let us hope it does not happen—we will have a substantial bill on our

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hands. At that stage it will have to be said that it will be a tough burden for the taxpayer to bear because the mistakes will not have been those of the taxpayer but those of the bank managers and the bank regulators.

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