Banks and financial institutions hate regulation. It is cumbersome, costly to adhere to, and costly to circumvent. In this HuffPost blog post, Denis Kelleher outlines the five fronts on which Wall Street has been fighting government attempts to regulate banks. Big banks have largely been successful in fighting off costly regulation. In my forthcoming book published by Cambridge University Press, I advocate either total regulatory lock-down of the banking system or no regulation. In the case of the latter, governments would also have to credibly commit to not bailing out banks when they get into trouble. The mishmash of complex rules we have today isn't fit for purpose. After all, this system didn't prevent the 2008 crisis!
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