The UK government's help to buy scheme aims to kick start the housing market by providing taxpayer-funded assistance to home-buyers. Individuals who can only afford to put down a 5% deposit on a house can receive a loan from the government for 20% of the property's value. From the start of 2014, the government will offer a taxpayer-funded guarantee to mortgage lenders who offer mortgages worth up to 95% of a property's value. The scheme has already come in for criticism and may have been behind recent rises in the property market (click here). Many economists fear that the scheme will simply result in another credit-fueled housing bubble, which will further weaken the financial system.
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