My Billion Dollar Education: Inside the Mind of a Rogue Trader by Iguchi Toshihide

Author:Iguchi, Toshihide [Iguchi, Toshihide]
Language: eng
Format: epub
Published: 2014-04-25T16:00:00+00:00

Chapter 14

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The Web We Weave

After the New York office of the Bank of Credit and Commerce International (BCCI) was closed down by Federal regulators for engaging in a complex money-laundering scheme in 1991, the Fed began examining the branches of all foreign banks.

Although we were still under the jurisdiction of the NY State Banking Department, the Fed had obtained supervisory power over us. That was not good news for me because while the State Banking Department did not understand bond trading, the Fed did.

In October of 1992, a group of examiners from the Federal Reserve Bank of New York walked through the branch’s doors. I was very concerned because the Fed was in the Repo market every day and was regarded as an unofficial guardian of the U.S. Treasury security market. They had sent a guy to sit in with the State examiners to check us out in 1989. As I didn’t know what to expect, I didn’t know how to prepare for it.

My main concern was the trading room. We couldn’t let them see the new state-of-the-art set-up in our downtown office. All our reports of the branch’s business described the downtown office as solely for our custody operation. Because the downtown office was approved only as a custody operation center, no proprietary trading business was supposed to be conducted there. Luckily, all ten or so examiners were given a large conference room to work in at our midtown branch office. Nevertheless, we needed to be sure that they would not see our sophisticated trading room. So, just for the duration of this examination, we moved the traders to midtown, and closed our trading room. As a matter of fact, we disguised the trading room to look like a storage room by piling up cardboard boxes on our desks, stacking a ladder, buckets, and whatever we could find on the floor.

The chief the Fed examiner was in charge of looking at trading. He had some foreign exchange trading experience himself. As the examination progressed, it became apparent that their focus was still on the asset quality, meaning the credit risks the bank was taking on its loans and not market risk. As for our trading operation, when he came down to the trading room on the seventh floor of the midtown office, there he saw traders for foreign exchange, money market, and Treasury bonds all at their desk. As we had added a few more chairs and trading equipment for our traders, he had no reason whatsoever to think anything out of the ordinary was going on.

During the second week, one examiner was sent to the downtown office to look at the custody operation. He arrived after lunch. As the manager of the downtown office, I invited him in and showed him our office. He glanced at the trading room, walked toward it, and actually looked in and said, “Oh.” It was obviously not in use. I explained what we did in our department, and he left after fifteen minutes.

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