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Technology Stocks : Discuss Year 2000 Issues

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To: flatsville who wrote (8990)	10/25/1999 11:26:00 PM
From: Hawkmoon	Read Replies (1) of 9818

Herstatt Risk: contingencyanalysis.com "A famous example of settlement risk is the failure of the German Herstatt bank. On June 26, 1974, that bank had already taken in all its foreign currency receipts in Europe, but had not made any of its US dollar payments when German banking regulators closed the bank down at the end of the German business day. Counterparties to the German bank incurred substantial losses. For this reason, settlement risk is sometimes called Herstatt risk. The Herstatt incident illustrated that settlement risk not only has a credit risk component, but a liquidity risk component as well. If a party does not receive currency which it has purchased, the party must somehow cover the shortfall in that currency. Following the closure of the Herstatt bank, the foreign exchange markets experienced severe systemic problems."

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