In the course of writing my book on British banking stability, I've been thinking a lot about financial repression. Financial repression is where governments repress the financial system in order to generate low nominal rates and negative real rates of interest. After World War II, most combatants had really high levels of debt. Consequently, governments used financial repression to reduce their debt servicing costs as well as the real value of their debt. After the 2007-8 financial crisis, many economies have very high levels of government debt. How can they reduce the real value of this debt and keep their debt-servicing costs low? The answer is financial repression - low nominal rates, negative real rates, and a small dose of inflation. You can read more about financial repression here and here.
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