Banks zoom in on risk control systems after SocGen

SINGAPORE/LONDON (Reuters) - Banks worldwide are watching the Societe Generale scandal intently and some have started reviewing their risk control systems to make sure they are properly armed against illegal trades.

Germany's biggest bank Deutsche Bank decided to make checks on its risk management systems after the news broke of SocGen's huge losses resulting from unauthorized trades by an employee, a spokesman said at the weekend.

A source inside a major U.S. bank has said the bank had brought forward its regular risk management review after the scandal. The source did not wish to see the bank identified.

Other banks are in wait-and-see mode as the saga unravels.

"When details of the SocGen incident become clearer, we will further evaluate our risk controls to prevent a similar incident from happening," a spokesperson for Singapore's United Overseas Bank said on Tuesday, adding that the bank assessed its systems continuously.

Karen Ngui, a spokeswoman for DBS Bank, Southeast Asia's biggest lender, said: "We take the opportunity to learn from the SocGen episode and also from various other incidents."

"WAKE-UP CALL"

SocGen said on January 24 it had uncovered massive unauthorized stock trading by one of its employees that led to 4.9 billion euros ($7.24 billion) of losses.

The bank accused 31-year-old trader Jerome Kerviel of creating fictitious accounts to make it look as though his aggressive bets that European shares would rise had been covered.

SocGen said Kerviel was able to cover his tracks partly because the bank's risk systems do not check up on unregulated over-the-counter contracts straight away if no deposit is required.

Kerviel moved into the dealing room from SocGen's back office. His knowledge of how the back office worked -- where millions of trades are processed -- enabled him to manipulate the computer systems to hide his dealings, SocGen says.

The UOB spokesperson described the SocGen debacle and the subprime mortgage crisis that triggered a global credit crunch as a "wake-up call" on the need for robust risk controls.

Morgan Stanley, Credit Suisse, Bank of America, Lehman Brothers, UBS AG and Barclays Capital declined to comment when asked whether they are boosting risk controls following the SocGen trouble, as did French derivatives specialists Natixis and Calyon and Spain's biggest bank Santander.

"We all know that banks and financial institutions will be checking and re-checking the system they already have in place," Anthony Belchambers, chief executive of the Futures and Options Association, said on Monday.

(Additional reporting by Sudip Kar-Gupta and Yann Le Guernigou in Paris and Andrew Hay in Madrid; writing by Olesya Dmitracova, editing by Elizabeth Fullerton)