The bank that closed mid-afternoon
On June 26, 1974, German authorities ordered Bankhaus Herstatt into liquidation. The bank was closed at 3.30 pm Frankfurt time, and its correspondent bank in New York then suspended every outgoing US dollar payment from Herstatt’s account, according to the BIS Quarterly Review of June 2026.
Banks that had sold Deutsche marks to Herstatt for dollars had already paid the marks in Frankfurt earlier that day. They were left exposed for the full value. The BIS calls the failure “a watershed moment in the history of financial markets”: cross-border payments stalled until major central banks signaled they would provide liquidity, and the committee now known as the Basel Committee on Banking Supervision was set up at the end of 1974.
How much is still exposed
The risk is smaller today but hasn’t gone. The BIS surveyed how currency dealers settled their trades in April 2025.
| Settlement method | What it does to the risk | Average a day, April 2025 |
|---|---|---|
| Payment versus payment | Removes it | Just over $5 trillion (36%) |
| Netting, settlement within a banking group, bank accounts with timing controls | Reduces it | $7.6 trillion (54%) |
| Gross bilateral settlement | Leaves the full trade value exposed | More than $1.4 trillion (10%) |
The Bank of England cited the same 10% when it published a test of linked settlement between central banks on November 13, 2026, describing that share as “fully exposed to settlement risk.”
Why trades still settle exposed
Two reasons dominated the survey answers. Either the counterparty had no access to a payment-versus-payment system, or the currency pair or type of trade wasn’t eligible for one.
The largest such system, CLSSettlement, covers 18 currencies as of June 2026, so trades in other currencies often fall outside it. Smaller systems in Brazil, Hong Kong, India and the United Arab Emirates cover some of the gaps.
The same risk outside banks
The exposure isn’t limited to banks. It arises whenever one side of a currency exchange pays before the other, including an over-the-counter trade of stablecoins for bank money where one party sends first.
Netting is not the cure
The common mistake is to assume that netting, which shrinks many payments into one smaller payment, solves the problem. The BIS says netting and the other methods in the middle row of the table “mitigate but do not eliminate” settlement risk. Only payment versus payment removes it, and even that leaves the cost of replacing a failed trade.