Also, compared to purely national banks, many cross-border banking groups have a more complex structure. This makes the analysis and information gathering more difficult. The functional specialization of cross-border banks also complicates supervision and information gathering. If a cross-border banking group concentrates all its credit assessments in one country it will be difficult for the supervisor in another country to assess the risk of the bank in that country without efficient supervisory cooperation and exchange of information. Further, if the bank puts all its liquidity management in a third country, extensive information sharing will be needed in order for any supervisor to get the full picture of the group’s total risks. In principle the parent bank – and therefore the parent bank’s supervisor – should have a full overview but in a crisis, positions may change quickly and thus complicate the collection of all relevant information. Such extensive information sharing becomes acute in a crisis but is also necessary in the day-to-day supervision. A second challenge is that conflicts of interest multiply. Banking problems can be very costly and the ultimate guarantee for financial stability can only be given by the government, since only the government has the power to tax. In most countries the deposit guarantee schemes are only able to  2  BIS Review 96/2006  finance the problem if it is confined to minor banks. For systemic problems, the government would have to intervene. With predominantly national banks, how this is done is fairly straight-forward.
In addition, a significant number of important emerging economies are in a very favorable situation of liquidity and external solvency, with more flexible foreign exchange rate systems and low inflation rates. 6  BIS Review 97/2007  The Chilean economy in this new financial setting It is premature and bold to try to quantify the possible effects on the economy of this adjustment that is under way. Pass-through channels will be rises in risk premiums, changes in the future path of monetary policy interest rates in industrial economies, adjustments in government bonds’ interest rates of industrial economies, a slowdown in the US and the world economy and a drop in commodity prices. What we do know is that Chile has built through the years a framework of policies and institutions that has not only favored price stability and reduced output volatility, but also increased the economy’s resilience to shocks generated by adjustments occurring in international financial markets as have been observed recently. Such a framework includes an autonomous Central Bank that conducts an inflation-targeting monetary policy under floating exchange rate, a fiscal policy whereby public spending is tied to the government’s permanent income, accumulating foreign exchange assets abroad during times of copper-price bonanza, thus contributing to enhance fiscal solvency, stabilize the real exchange rate and smooth the business cycle. Finally, Chile’s banking regulation and supervision system has helped develop a strong and safe banking system.