Question:
Barings PLC, a British merchant bank, was bankrupted in 1995 by Nick Leeson's (a derivatives trader for the bank) futile bets against the future level of the Nikkei index. In October 2010, Jerome Kerviel, a rogue derivatives trader for Societe Generale, a French Bank, was sentenced to prison for five years for causing the bank a 4.9 billion euro loss by betting on futures linked to European stock markets. Do you think the banking system can take steps to insure itself against the risk associated with the implicit moral hazard in these type of situations?