Brief history of the bank
In June 1956 Iwan David Herstatt started Herstatt bank with the combine efforts of his friend Hans Gerling.Herstatt Bank was the thirty fifth largest bank of Germany.The bank had an asset of 2.07 DM at the end of 1973.
Danny Dattel was heading the head of the foreign exchange department .His contact was very little with the other divisions.
After lapse of the coupling of the European currencies to the US Dollar speculations with foreign exchange developed as the principal item of the banking transaction.
Background of the collapse
* In 1974 the Herstatt Bank of Germany failed due to some reasons .Herstatt Bank faced huge crisis in foreign exchange liquidity.
* Considering the volatility of the markets is very important factor. Because of these time differences the Herststt Bank was not able to clear its all transactions at one time.Thus; Herstatt Bank could clear only those foreign exchange trades which were in one jurisdiction but not in another.
* It caused several more bank failures. Whom Herstatt bank owed delivery of foreign currencies
* Another major reason of the collapse was the huge foreign exchange exposure of the Herstatt bank, because it was eighty times more than its estimated exposure limit.