Supervisors are accountable to the domestic depositors, creditors and policy holders and protecting the domestic financial system and therefore there may be justifiable reasons for requiring both capital and liquidity to be held locally, whether the presence is by way of a branch or subsidiary.
In this regard, some of the short term efficiency gains may have to be compromised in the interest of broader financial system stability through containment of the contagion effects. Conclusion Much of the current debate on many issues centres on the epicenter of the crisis, the developed economies with relatively advanced financial systems.