I have just finished reading the report on the HBOS failure by the Parliamentary Commission on Banking Standards. It is a fascinating report into why HBOS failed and the extent of the bank's risk taking in the years leading up to the crisis. The press has focussed on how the report criticises the bank's former executives and chairman. However, the FSA (the UK's financial regulator at the time of HBOS's failure) also comes in for heavy criticism. There is also a suggestion in the report that the Government's ring-fence proposals to make the banking system safer would not have prevented HBOS from failing as it had no investment banking activities. Unsurprisingly, there is no criticism of the politicians who allowed (and encouraged?) banks to pursue aggressive asset growth in the 2000s!
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