Will being born or living through the present financial and economic crisis affect your future decision making? Recent work by Ulrike Malmendier and her co-authors suggests that experiences of macroeconomic instability and depression make individuals less willing to take financial risks in the future - click here. In addition, they find that corporations managed by executives who grew up during the Great Depression were less likely to rely on debt finance and more likely to use internal finance – click here for the paper.
As an undergraduate, I was taught about the failure of Herstatt Bank in 1974 and Herstatt risk. This bank was only the 35th largest bank in Germany at the time so why would anyone be interested in studying its failure? Herstatt failed because of its involvement in risky foreign exchange business. When it closed its doors on 26 June 1974, counterparty banks (mainly in New York) had not received dollars due to them because of time-zone differences - this is known as settlement risk. The cross-jurisdictional implications of its failure resulted in the Bank for International Settlements setting up the Basel Committee on Banking Supervision and Herstatt's failure was a key reason for the establishment of real-time gross settlements systems, which ensures that payments between two banks are executed in real time. The Bank of England's Ben Norman has an interesting post on Herstatt over at the Bank's new blog ( Bank Underground ). As well as giving an excellent overview of