In 2008, the French bank Société Générale suffered a loss of EUR 4.9 billion as a result of unauthorised and unhedged positions taken by the rogue trader Jérôme Kerviel. Although Kerviel had begun opening and closing unauthorised positions as early as in 2005, they were only discovered by the bank in 2008, because Kerviel's knowledge of the bank's system allowed him to successfully conceal them. A detailed investigation into the fraud revealed poor management of operational risks and the bank's failure to react to warning signs.
In this thesis, we define operational risk and present the timeline of Kerviel's frauds, as well as the financial instruments and methods he used. We also describe the events leading up to the exposure of the fraud and explain the responsibility of the bank that was unable to prevent or at least detect the fraud in time. We further outline the consequences of fraud for the parties involved and for the regulation of the banking market.
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