The Office for National Statistics in the UK has just released its estimates for GDP in the last quarter of 2012 (click here). GDP fell by 0.3%, which means that if GDP growth in the first quarter of 2013 is negative that the UK is officially back in recession for the third time since the 2008 financial crisis. GDP in the UK is still below its 2007 level, and the big question for many economists is when will GDP get back to its 2007 level? Many commentators are talking about a decade or more of lost growth. Maybe it would have been better to let the banks fail in 2008 rather than endure a sickly economy for a decade or more!
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