Societe Generale Paper

A CRITICAL ANALYSIS OF INTERNAL CONTROL IN BANK TRADING INFORMATION SYSTEMS IN RELATION TO BOURDIEU’S CONCEPT OF HABITUS

C. Richard Baker

School of Business

Adelphi University

Garden City, New York 11501 USA

Telephone: 1-516-877-4628

E-mail: Baker3@Adelphi.edu

A CRITICAL ANALYSIS OF INTERNAL CONTROL IN BANK TRADING INFORMATION SYSTEMS IN RELATION TO BOURDIEU’S CONCEPT OF HABITUS

Abstract

The purpose of this paper is to develop a critical analysis of breakdowns in internal control over bank trading information systems through an examination of a fraud perpetuated by a mid-level derivatives trader at the large French bank, Société Générale, at the beginning of 2008. The theoretical framework for the paper is based on Bourdieu’s concept of Habitus. The paper explores two research hypotheses regarding breakdowns in internal control over bank trading information systems. The first hypothesis is that cultural differences among countries may lead to a breakdown in controls over trading information systems. The second hypotheses is that there may be a sort of willful blindness in which bank management turns a blind eye to risky trading practices even when there are adequate controls in place to provide early warning signals about the risky practices. Ultimately, we place greater credence on the second hypothesis focusing on the possibility that bank management turns a blind eye to risky trading practices, as long as these practices lead to profits, but that bank management will quickly take action when such practices lead to losses, as was the case in the Kerviel fraud.

A CRITICAL ANALYSIS OF INTERNAL CONTROL IN BANK TRADING INFORMATION SYSTEMS IN RELATION TO BOURDIEU’S CONCEPT OF HABITUS

1. INTRODUCTION

In January 2008, Société Générale, the third largest bank in France, disclosed that Jérôme Kerviel, a mid-level derivatives trader, had lost €4.9 billion (US $7.2 billion),...