What if a CLS Bank outage revives Herstatt risk in FX settlement?
A CLS outage pushes FX into bilateral settlement, reviving Herstatt risk across a $7.5T/day market — counterparties hoard dollars and gold/BTC reserve hedges sell as funding stress dominates. Rhymes with the 1974 Herstatt failure itself, the event CLS was built to prevent. Forward angle: CLS settles the bulk of global FX with no equivalent backup — a multi-day outage is a genuine settlement-risk tail; trade the dollar-funding squeeze (cross-currency basis) over directional equity.
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The butterfly cascade
How this trigger trickles across markets, left → right — the root shock, its first‑order moves, then the ripple effects. Drag any node; tap a market for its real price history.
Resolution timeline — how this probability is moving
Our model's odds (electric blue) over time vs the market's (Polymarket, amber), from the past toward the Tail risk horizon. Each dot is a real macro event that nudged the probability — green pushed it up, red pushed it down. Tap a dot for the source. Loading the probability audit trail…
What it would mean
If this plays out, it is a risk-off shock. An outage at CLS Bank forces FX trades into riskier bilateral settlement, reviving Herstatt risk across the $7.5T-a-day currency market. The trigger decomposes into signed root‑shocks — Dollar/reserve confidence ▲ · Financial conditions ▲ · Risk appetite ▼ — which propagate through our causal graph to the markets below.