Herstatt Bank
In june of 1974 a small german bank herstatt bank failed.
Herstatt bank. One form of settlement risk is foreign exchange settlement risk or cross currency settlement risk sometimes called herstatt risk after the german bank that made a famous example of the risk. That failure caused a string of cascading defaults in a rapid sequence totaling a loss of 620 million to the international banking sector. Settlement risk in large value payment systems credit systemic risk has come to be known as herstatt risk international settlements.
On june 26 1974 the bank had taken in its foreign currency receipts in europe. Basically the operations of the bank were suspended in the middle of a foreign currency exchange transaction. Herstatt bank bankhaus i d.
It went bankrupt on 26 june 1974 in a famous incident illustrating settlement risk in international finance. A little more on what is herstatt risk the name is derived from the german herstatt bank which shuttered in 1974 for insolvency. Milan italy june 28 the failure of west germany s biggest private bank bankhaus i.
Herstatt of cologne has dealt another blow at confidence in the monetary world and has caused a general. Settlement risk is sometimes called herstatt risk named after the well known failure of the german bank herstatt. Herstatt k g a a was a privately owned bank in the german city of cologne.
Herstatt was a small german bank that was involved in many foreign exchange transactions when it failed. The bank was insolvent and it left the dollars that it owed on its foreign exchange deals. In 1974 a small bank in germany bankhaus herstatt was closed in the middle of the day by regulators.
It is named after a small german bank bankhaus herstatt which failed in june 1974 during the period it was supposed to settle a contract after having received the payment from the counterparty.