In early 1995 people were glued to their television sets watching the aftermath of a very large earthquake in the city of Kobe in western Japan. Little did they suspect the deep-seated implications of this event on the financial markets in general, and on the Bank of England in particular. The earthquake caused a major sell-off in the already weakened Japanese stock market. As a result Baring Brothers, the venerable British merchant bank, lost such a large (and at the time unquantifiable) amount of money that it had to be sold to a Dutch bank for a symbolic £1. In late September 1998 the financial world looked on the verge of a serious precipice: the Russian government had defaulted on its rouble-denominated debt, Long Term Capital Management (LTCM), a hedge fund, was being bailed out byWall Street, and financial stocks had lost half of their market value. Alan Greenspan, Chairman of the US Federal Reserve Board, noted that “[t]he most virulent phase of the crisis has infected our [U.S.] markets as well. Concerns about business profits and a general pulling back from risk taking in the midst of great uncertainty around the globe have driven down stock prices and pushed up rates on the bonds of lower-rated borrowers. Flows of funds through financial markets have been disrupted.”1 In the aftermath of this international crisis many major financial institutions were forced to disclose very large losses and lay off hundreds, even thousands, of workers. Early in 2002 Ireland’s largest bank, Allied Irish Bank (AIB), announced that a trader in its Baltimore-based subsidiary had lost $691 million – or 16% of AIB’s capital base. After significant regulatory scrutiny the bank was compelled to overhaul its management structure and re-examine all of its control processes. In late 2002 Natexis, the investment bank of Banques Populaires in France, declared that it had experienced “heavy” losses from derivatives trading.