The most comprehensive educational resources for finance

Control Deficiencies at Allfirst Treasury That Led to Fraud

There were many control deficiencies in Allfirst Treasury that made the fraud by Mr. Rusnak possible. The key control deficiencies are listed below: 1. The failure of the back office to attempt to confirm bogus options with Asian counterparties This is one of the most important control deficiencies in the Allfirst’s treasury. Even though they

AIB: Discovery of Fraud, and Magnitude of Losses

Discovery of the Fraud Mr. Rusnak’s fraud scheme started unravelling in early December 2001. This happened when the back office supervisor came to know that the option trades were not being confirmed and the back office employee explained to him that they did not require confirmation because they offset each other and were with Asian

AIB Currency Losses: John Rusnak’s Role and the Fraud

John Rusnak’s Role In July 1993, Allfirst hired Mr. Rusnak. The hiring process was led by the head of treasury funds management for Allfirst, Mr. Ray. Mr. Rusnak had extensive experience in currency trading. Mr. Rusnak promoted himself as a trader who used options to engage in a form of arbitrage, attempting to take advantage

AIB/Allfirst Structure, Treasury and Forex Trading

In this case study we will discuss the losses sustained by Allfirst Financial Inc. and Allfirst Bank in foreign exchange trading. The primary person responsible is john N. Rusnak. In this first part we look at the relationship between AIB/Allfirst, treasury and foreign exchange trading. The AIB/Allfirst relationship Allfirst, formerly knows as First Maryland Bancorp,

How Icelandic Banks Funded their Risky Business Models

Even after the mini-crisis in 2006, the Icelandic banks were able to fund themselves. The banks had three primary funding sources: 1. Issuance of commercial paper and bonds 2. Foreign wholesale and retail deposits 3. Loans, including bilateral and syndicated loans, and money market lines from relationship banks. Let’s look at each of these sources

Icelandic Banks: Asset Composition and Quality of Banks’ Balance Sheets

In this article we will take a look the asset composition of the Icelandic banks and the concentration risk in the system. There are several factors that contribute to the deteriorating asset quality of the banks. This includes: Expansion of loans to corporate and housing sector. Loans denominated in foreign currency (vulnerability to depreciation in

How Icelandic Banks Underplayed their True Riskiness?

Before the financial crisis began, even though all the warning signals were there, the top three Icelandic banks were able to underplay their true riskiness. Moody’s had assigned high credit ratings to all these banks. Moody’s ratings consider both quantitative and qualitative factors. Let’s take a look at the reasoning behind Moody’s ratings. Quantitative Factors

Early Warning Indicators in Icelandic Financial Crisis

Like in every financial crisis, even the Icelandic Financial Crisis provided many early warning indicators and cues, which if acted upon at the right time could have avoided or atleast reduced the extent of the losses. Let’s look at the key early warning indicators: 1. Size of the balance sheets compared to the size of

Triple Crisis in Iceland

The year 2008 saw the collapse of the three largest banks in Iceland. Relative to the size of the economy this was the largest banking failure in the world. The purpose of this tutorial is to discuss the details of the case, how it happened, the warning signals, and other case details. Triple Crisis in

Shortcomings of Risk Models

We have seen the importance of risk models and risk management in general for the successful functioning of an organization. However, the risk models that are in place today have certain shortcomings. Most models work with a one-year time horizon. However, a one-year time horizon may not be sufficient in all situations, and the model