The council should comprise members who do not represent a political party, but a particular field of expertise: business, banking or economics.” One example of an existing body of this type is the Swedish Fiscal Policy Council, which was established in 2007 as an agency under the government. In the UK, an interim Office for Budget Responsibility (OBR) was recently set up. And in the euro area, the budgetary surveillance of the European Commission is referred to as the “preventive arm” of the Stability and Growth Pact. But, as highlighted by the commission itself: “In order to function effectively, it requires a common understanding of the economic and fiscal policy challenges in the European Union, and a strong political commitment to addressing them.” How to enforce a strong political commitment to address the fiscal bias is still very much an unresolved question. BIS Review 113/2010  7  The second question is how to secure adequate international coordination in both crisis prevention and crisis resolution. International coordination is important  As the chart shows, foreign banks’ share of the market in Norway is approximately 1/3. In some countries, foreign banks’ share of the market is higher or even 100%, with no domestic banks at all. Today a bank’s regulation is laid down and supervised by the authorities in the bank’s home country. When foreign banks’ share in a market is large, this challenges the concept of a level playing field insofar as national supervisory authorities do not coordinate their work.
This way of organizing regulation will be an even bigger challenge when new regulation designed to hinder the build-up of systemic risk is introduced, since a host country and the home countries of banks operating in the host country may be in different stages of the business cycle. Output gap in the Nordic countries  This is illustrated in this chart showing output gaps in the Nordic countries. Today most economies are closely integrated with other economies, both through trade and through  8  BIS Review 113/2010  financial markets. Still there may be significant differences both in the timing (and amplitude) of peaks and troughs in the business cycle and in the functioning of financial markets. Asymmetries between countries mean that the appropriate regulatory parameters to dampen systemic risk will not necessarily be the same for all countries at the same time. To be effective, regulatory parameters, for instance those calibrated to ensure the buildup of countercyclical buffers, need to encompass all banks operating in the same jurisdiction, as put forward in the July 2010 BIS proposal. Finally, I will say a few words on crisis resolution. Resolution actions taken in one country in response to a crisis can have effects on banks in other countries that do not choose to introduce the same resolution actions. For instance, issuance of government guarantees in one country can weaken banks in neighboring countries without such guarantees (since government guarantees provide an incentive to move deposits to banks in these countries).