Barings Bank was founded in London in 1763. Where it rose to become a leading Merchant Bank. As such, it provided traditional banking services to the public, but it also included investment activities in stocks, bonds, commodities, and real estate. By being flexible and creative in crafting financial solutions for companies, Barings grew steadily over time, enjoying an active presence across the globe.

The bank focused its activities in the investment sector, so its successes in trading determined its future. In February 1995 the bank discovered that a massive fraud scheme, perpetrated by one of its traders in Singapore, had wiped out the bank's capital and destroyed the 220-year-old institution. By 1989, Barings had established trading operations at most of the world's exchanges, operating primarily in British Commonwealth countries and former British colonies. In that year, Nick Leeson, a young commodities trader, joined the bank. He had graduated from college and spent two years at Morgan Stanley as a settlements clerk, clearing the huge futures and options deals the traders were making.

When he joined Barings, it was in this same role, clearing settlements and learning the back office operations of the bank. Bored with the limited opportunities for advancement, Leeson quickly applied for a transfer, taking a position in the Bank's trading operation in Jakarta, Indonesia. He had applied for the position based on the image of an exotic locale and the flashy marketing materials the bank used to promote its Far East experience. But he soon found the reality to be vastly different, with the operations actually just a hotel room with several computers in it. In his autobiographical account of the scheme, Leeson claims to have learned just how lax the bank's controls were and how much tolerance the bank extended to "superstar" traders. He claims that significant losses were essentially ignored, because they were typically not found until subsequent profits were booked to cover them. With this experience under his belt, Leeson was returned to London, where he spent the next year or so traveling around the Far East, meeting the various people and learning about Barings' various operations in the region. During that time period, Barings acquired a seat on the Singapore International Monetary Exchange (SIMEX) but had not yet begun utilizing it. In 1992 Leeson was selected to open, run, and manage the new operation in Singapore, managing all aspects of trading on SIMEX. He had been with the bank approximately three years and had a total of five years of experience in banking.

In his early stages, Leeson concentrated on arbitraging currency transactions. This is a fast-paced practice in which speed and timing can enable a slow and steady profit. But for its relatively low risk, it is a stressful and high-energy way to make relatively small profit margins. Leeson soon became disenchanted. With his background in settlements, Leeson was quick to catch any slight errors in the trading slips. Typically small errors would be booked against an errors account in London, with the positives and negatives generally netting out over time. In order to take advantage of the time differential, Leeson asked to be allowed to create a local error account, named the 88888 account. This would later prove vital to his orchestration of the scheme.

One of the keys to making money in this type of trading is the fast-paced nature of the transactions. Deals are done and cleared the same day, reducing the risk but also minimizing the opportunity for profits. As Leeson's group grew on the relatively small SIMEX exchange, their percentage of the total number of deals grew dramatically, making clearing all of the settlements on the same day difficult. As such, Barings was occasionally allowed to hold deals overnight and settle the next day. This would also later prove to become a key element of the scheme.Soon after these two keys were in place, Leeson discovered a major error. One of his traders had improperly sold a position instead of buying the position, creating a ?20,000 loss in the process. Leeson took the matter to his boss, who told him to fire the trader and go on. Leeson instead attempted to hide the loss in the error account, holding the closing not only overnight but over a weekend to attempt to "lose" the transaction in the flurry on Monday's work, hoping that a profit then would cover his loss from Friday. But the markets began moving against this hidden transaction, so that, a few days later, the same still unreconciled trade would create a ?60,000 loss. Leeson decided that, rather than admit the situation to his superiors, he would actively manipulate the books to conceal the loss. This was his first foray into the fraud that would eventually destroy Barings Bank.

Over the next two years Leeson expanded upon an increasingly risky trading strategy, making larger and larger bets on the movements of the currency markets. He had discarded the safe but low-margin arbitrage approach in favor of a much more risky but potentially much more profitable series of direct currency gambles. He explained to his superiors that his change in strategy would entail holding positions longer, but he began booking significant profits from his trading activities. But these paper profits only concealed the roller coaster of up and down wins and losses on the trading floor. To cover his losses Leeson had to transfer cash at closing, so, despite the large paper profits being booked, he was continually asking for additional cash from London. By July 1994 Leeson had created and concealed losses totaling over ?50 million. With his strategy failing, Leeson took ever increasingly wilder risks. He expanded the size of his positions, making and losing in a single day first millions and then tens of millions. When the scheme collapsed, Barings had to transfer over 7.7 billion yen ($600 million) to the exchange to cover Leeson's margin losses.

Leeson's audacious scheme succeeded for two primary reasons: management failed to look beyond the paper profits to understand how he was generating these tremendous returns, and nobody in London questioned his continual and increasing needs for cash. Barings' failure was in not recognizing that Leeson's activities were essentially a Ponzi scheme, albeit one that relied on a single internal investor to continually cover the snowballing losses caused by the scheme. Its controls failed because of an inability of management to see the impact of the ever-increasing demand for cash into an ostensibly profitable trading division.