Forgotten and remembered nightmares: Herstatt Risk in the global payments system

Book section : Chapter

Financial episodes can have effects beyond their own direct impact through the memories that they evoke for generations of market participants and regulators. This chapter traces how the memory of the 1974 Herstatt Bank collapse evolved in the 30 years following, as banking and financial markets globalized and the cross-border payments system was transformed from paper to complex ICT solutions. Along the way, we consider less well studied episodes of financial system distress and demonstrate how these events were remembered by policy-makers through their own words. We then consider why it took so long to reduce Herstatt Risk despite its strong memory among bankers and policy-makers. The inability of private-sector initiatives on their own to overcome technical, operational, and jurisdictional challenges meant that banks struggled to come up with robust feasible solutions. Meanwhile coordination problems among central bankers made it difficult for them to grapple with the systemic structure of settlement risk.

Authors: Schenk, CR

• Publication status: Published
• Peer review status: Peer reviewed
• Publisher: Oxford University Press
• Host title: History, memory, and the return of financial crises since the end of Bretton Woods
• Pages: 16-38
• Chapter number: 2
• Place of publication: Oxford
• Publication date: 2026-04-01
• Edition: 1
• DOI: 10.1093/9780198950158.003.0002
• EISBN: 9780198950158
• ISBN: 9780198950127
• Language: English
• Keywords: Herstatt Risk; correspondent banking; cross-border payments; international banking; foreign exchange
• Subtype: Chapter