This year's winner of the Nobel Prize in Economics is Jean Tirole. Tirole is best known as someone who has formalised (in a mathematical sense) key concepts in microeconomics and industrial organisation. Click here to read Tyler Cowen's comprehensive post on Tirole's contribution to economics. Tirole played a large role in my education. I read / studied two of his books during my graduate studies - The Theory of Industrial Organization (1988) and The Prudential Regulation of Banks (1994). Notably, both of these books have stood the test of time - as will his book The Theory of Corporate Finance (2006).
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