As many questions for the board as for the Bank

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The Board of Banking Supervision, which is carrying out the Government's investigation into the Barings affair, may not be a tame poodle of the Bank of England. But it is equally hard to regard it as a truly independent bloodhound that will get to the bottom of this hideous story, naming names without fear or favour.

The members are appointed by the Chancellor and the Governor of the Bank. They include Sir Dennis Weatherstone, who has just retired from JP Morgan, one of the best run banks in ther world, and five other great and good from the financial world who have considerable clout in their own right.

But the board is chaired by Eddie George, the Governor, with his deputy, Rupert Pennant-Rea, and Brian Quinn, the director with responsibility for supervision, sitting alongside as ex-officio members.

And although the board members are responsible for setting the framework for the inquiry, supervising the work and supposedly asking the key questions, the foot-slogging is done mainly by specialists in supervision and fraud investigation within the Bank itself.

No matter how scrupulously the board does the job, this is a committee whose report is compromised before it is written. The Barings crisis deserves a fully independent inquiry along the lines of that by Lord Justice Bingham into BCCI. Perhaps the first of many questions when the board holds its first meeting in the next day or so is whether it is the right outfit to do the job.

But since we are unlikely to get anything other than an affirmative answer to that, what are the key questions the board itself has to ask, as it follows the trail of disaster from Singapore through Tokyo to Barings' headquarters in Bishopsgate in the City?

First, it should be prodding its ex-officio Bank of England members on why the supervisors were the last people in the markets to hear that something odd was going on at Barings. Enough was publicly known weeks ago in the Far East for traders to spot a concentration of contracts through Barings and take bets themselves in the opposite direction, in the belief that the position was unsustainable. The size of the positions could have been read each week in the Nippon Kesai Shimbun, Japan's daily financial newspaper.

Did the Singapore and Osaka futures exchanges fail to spot it? If they did see it, was the message passed to Barings senior management and its regulators, the Bank of England and the Securities and Futures Authority in London? And if that did happen, was anything done about it?

Obviously, the main task at the moment is to unravel what was done in the market by Nick Leeson. But the board's questions for Barings itself are as important as those for Bank officials. Who at Barings controlled and supervised Mr Leeson, and who gave him permission to run his own settlements - contrary to every accepted practice in the industry?

How many of Mr Leeson's positions were on behalf of genuine Barings clients, and to what extent were they fictitious? It is also vital to clear up whether Barings itself was punting alongside Mr Leeson, putting up authorised cash for its own margin calls as the Tokyo market weakened.

What was the exact date at which Barings management in London was first alerted to a problem, even if at the time it did not appreciate the scale? Clearly, with a ballooning speculation, a week's delay in acting would have been costly. While this was going on, how did Mr Leeson manage to hide the extent of his activities, both from the on-the-spot auditors and from the Singapore futures exchange?

Finally, will the entire report be published, or will it be filleted using the excuse of Banking Act secrecy? Only a blow-by-blow account, naming names, is likely to satisfy public and City disquiet. The trouble is that nobody on the board is likely to be in any doubt that the Bank's own future as banking supervisor is very much on the agenda in this inquiry.

The board was only set up as a compromise solution after the Bank's less than exemplary performance in the Johnson Matthey Bank affair. Mrs Thatcher was so incensed by what she felt was the Bank's complacent role as banking supervisor that she wanted to take all responsiblity for supervision away from Threadneedle Street. She was dissuaded from this drastic action by the then Chancellor, Nigel Lawson, but the arguments are bound to be rehearsed all over again this time round.

Grisly ending to the Pentos horror story

So the Pentos saga continues on its grisly way, a catalogue of horror to the end. Yesterday's announcement that the group was going into administrative receivership puts December's desperate abandonment of Athena, the poster shop subsidiary, into even sharper focus. It looked then like the desperate last act of a company ready to do anything to stave off its death throes.

And so it has proved. Tossing the creditors of Athena overboard to save the parent company's skin may have been bad form, but it had one great merit: it allowed the cash-strapped parent company sufficient time to take shoppers' money off them over the crucial Christmas period. But, in a business which has effectively been brought to its knees by past financial excesses and a catalogue of management errors, it could not stave off the inevitable trauma of having to pay the suppliers of the books and coloured pens their money.

Pentos already had a reputation as one of the worst payers in the business, and when the bills for all those books finally came to be paid this week, it all proved too much. The company was promptly pushed into administrative receivership by its banks. It looks like a smart move for them, but it will, as usual in these carcass squabbles, leave shareholders and other creditors fuming. It was, after all, barely a year ago that shareholders were persuaded to stump up more cash in a rights issue. They are entitled to know whether the business plan they were being asked to support was as realistically based as it was made out to be.

It seems that the banks will now be able to retrieve most of what they were owed through the sale of Dillons and Pentos Office Furniture. Rymans remains a dreadful pig in a poke and will presumably be dismembered over the next few weeks. Thorn EMI looks set to come up with the winning bid for Dillons, ahead of the rival management buyout offer. From a purely business point of view, the sooner that a serious management can get its hands on the Dillons business the better it will be.

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