The 1974 failure of Herstatt Bank prompted the creation of the Basel Committee on Banking Supervision.
Cologne-based Bankhaus Herstatt was shut down by German regulators on 26 June 1974 after severe losses in foreign-exchange trading. Its failure exposed a dangerous timing problem in international payments. The bank had received deutsche marks from counterparties during the European business day but was closed before making corresponding U.S.-dollar payments in New York.
This mismatch became known as Herstatt risk, or settlement risk: one party completes its payment while the other fails before delivering the payment due in return. The episode showed that banking failures could cross borders quickly and that supervisors needed stronger international communication.
Later in 1974, the central-bank governors of the Group of Ten established the Committee on Banking Regulations and Supervisory Practices, now known as the Basel Committee. The committee later developed Basel I and subsequent capital standards.