Lloyds Bank lost $78M in unauthorized forex — an old lesson in who watches the trader

Lloyds Bank was one of the UK's oldest and largest banks, part of the 'Big Four' British retail banks. Its Lugano, Switzerland branch operated a foreign exchange trading desk that served international clients and the bank's own treasury needs.

In 1974, the bank discovered that its Lugano branch had suffered losses of $78 million from unauthorized foreign exchange trading. The loss was one of the largest banking scandals of the era and one of the earliest examples of a 'rogue trader' — a single employee exceeding their authority and hiding the losses from management.

The scandal was particularly damaging for Lloyds because it occurred at a time when the banking industry was already shaken by the failures of Bankhaus Herstatt and Franklin National Bank, both of which had collapsed from unauthorized forex trading in the same year. The three cases together exposed the vulnerability of the global banking system to unmonitored foreign exchange trading.

Lloyds survived the loss, but the scandal led to significant reforms in how the bank monitored its foreign exchange operations. The case became a textbook example of the importance of trade surveillance and separation of duties in banking.