The supervisory board of Caisse d'Epargne are meeting today to decide what will happen to the board's chairman, as well as other senior executives, following the revelation that the French bank lost of millions of euros in a trading incident. The bank, which is merging with Banque Populaire to become the country's second-largest retail bank, disclosed a 600 million-euro ($808m; £466m) trading loss on share derivatives.
Derivatives are a way of investing in a particular product or security without having to own it. The value can depend on anything from the price of coffee to interest rates or what the weather is like. Derivatives can be used as insurance to limit the risk of a particular investment.
French President Nicolas Sarkozy said the bank's losses were "unacceptable", and a special audit of all French banks has been ordered by Finance and Economy Minister Christine Lagarde.
The scandal at Caisse d'Epargne revived memories of junior trader Jerome Kerviel, who was blamed for costing another French bank Societe Generale, 4.9 billion euros ($7bn; £3.7bn) earlier this year.
Troubled French bank set to meet
Billionaire Warren Buffett has previously warned that these complex instruments were an investment "time bomb" devised by "madmen" and more famously, described them as "financial weapons of mass destruction".
The Governor of New York, David Paterson has recently stated that the city will begin regulating part of the $62 trillion credit default swap (CDS) market next year because a lack of regulation in that area of finance has contributed to the current credit crisis (CDS are a type of derivative contract, designed to transfer credit risk - in effect a form of financial insurance).
Considering that the world economy last year was estimated to be worth $54.62 trillion, the events surrounding Caisse d'Epargne shows what can happen if the time bomb explodes...
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