This week's Economist has a really nice section on the growth of inequality (click here). Many parts of the developed (and emergent) world have experienced growing wealth and income inequality over the past three decades. My own work on Ireland shows that wealth in the 19th century was concentrated in the hands of the top 1% of the population, but from 1900 onwards wealth became less concentrated. However, since the 1980s, wealth has become much more concentrated. The big questions arising from this for economists and other social scientists are why has this happened and what can we do about it?
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