Summer in the City: Banking Failures of 1974 and the Development of International Banking Supervision

Abstract

2. Staff involved in prudential supervision may have inferior understanding to that of those employed in banks themselves, partly because the salaries in supervisory institutions are lower than in banks: E. Ribakova, 'Liberalization, Prudential Supervision and Capital Requirements: The Policy Trade-Offs', I[nternational] M[onetary] F[und] Working Paper, WP/05/136, July 2005. 3. For example, the self-regulation of stock markets and foreign exchange brokers. The importance of self-regulation was highlighted in the Report of the Committee to Review the Functioning of Financial Institutions [the Wilson Committee], British Parliamentary Papers 1980, Cmnd. 7937, pp. 288-98.

Financial globalization as positive integration: monetary technocrats and the Eurodollar market in the 1970s

“…First, surging interbank lending rates precipitated the first major run on the US interbank money market, the most prominent victim of which was Franklin National Bank, which had moved aggressively into the Eurodollar market (Spero, 1980, p. 91). Second, on 26 June 1974, Bankhaus Herstatt, a mid-sized German bank that was active in the Eurodollar market, failed (Schenk, 2014). The fallout from Herstatt's sudden collapse led to the establishment of a second major committeethe Committee on Banking Regulations and Supervisory Practices, subsequently the Basel Committee on Banking Supervisionand had a lasting impact on banking supervision and regulation (Goodhart, 2011;Mourlon-Druol, 2015).…”

Banking Union in Historical Perspective: The Initiative of the European Commission in the 1960s–1970s

“…This motivation was of course linked to the financial context. Among the various financial innovations/crises that spurred the debate about international regulation/supervision were the rise of the unregulated euromarkets from the 1950s–60s onwards (Schenk, ), the international banking crises of 1974–5 (Schenk, ) and especially the collapse of Bankhaus Herstatt (Mourlon‐Druol, ). Events in the banking sector, especially in the foreign exchange and eurocurrency markets, called for measures to be taken in the co‐ordination of banking legislations.…”

“…The banking crises of the mid‐1970s involved an international dimension, but one that went beyond the EEC's borders. The failure of Bankhaus Herstatt highlighted the need for co‐ordination across the Atlantic, the Israel–British Bank involved transactions between a London subsidiary and the head office in Tel Aviv, and the Lloyds Lugano banking scandal happened in the Swiss branch of the British bank (Mourlon‐Druol, ; Schenk, ). In all three of these cases, intergovernmental co‐operation was more necessary at the BCBS/BIS level than at the EEC level.…”

‘Trust is good, control is better’: The 1974 Herstatt Bank Crisis and its Implications for International Regulatory Reform

“…97 Part of the solutions envisaged to avoid another Herstatt-like failure were domestic in nature, and concerned the creation of the Liquidity Consortium Bank, or Liko-Bank, jointly owned by the Bundesbank and the banking industry. It was designed to provide liquidity on a short-term basis to institutions that were otherwise financially sound banks.…”

“…Franklin National Bank, the Israeli British Bank (IBB) and the Lloyds Lugano crisis all affected, to different extents, markets that were already shaken by earlier problems, such as the British secondary banking crisis of 1973. 2 The above-mentioned cases all raised significant questions as to who would regulate and supervise what and where.…”