However, U.S. experience with foreign branches in the decade prior to the crisis shows the very real risks that can arise when a branch is used to raise funds in the host country (in the United States, in dollars) through short-term wholesale borrowing, and then directs those funds out of the host country for loans or asset purchases by other parts of the bank.
As noted earlier, when short-term funding dried up, many foreign branches were left seriously short of liquidity and had to turn to the discount window. A shared feature of the U.S. and European Union regulatory systems for foreign banks is that branching is permitted without requiring separate capitalization. Many other jurisdictions have similar policies.