1974 - 1975

Collapse of the Herstatt Bank in Germany and creation of the Basel Committee

The collapse of this medium-sized bank sparked a deep crisis in the foreign exchange market, on which it was very active. The New York interbank market came to a standstill, almost leading to the collapse of a number of other institutions. This bankruptcy brought to light the systemic risks related to the increasing internationalization of banks.

Shortly after this event, Peter Cooke from the Bank of England proposed setting up a committee of central banks and banking supervisory authorities, which became known as the Basel Committee. In 1988, this committee issued a set of guidelines known as the Basel I recommendations. In particular these featured the Cooke ratio, which set financial institutions an 8% target minimum ratio for capital to loans granted. The Basel II Accord, a new system that came into force in 2006, notably replaced the Cooke ratio by the McDonough ratio, which factored in market and operational risks such as fraud alongside credit (or counterparty) risks. Most recently, the Basel III agreement of 2010 reformed banking regulation following the subprime crisis.