What we need to do as supervisors is to make sure that global banks have adequate risk management capabilities, sufficient loss-absorbing capital, and are subject to intensive and coordinated supervision, so that we are able to contain the systemic risk they pose without curtailing their contribution to economic growth worldwide. We have nothing to fear from global banks which are well-managed, well-capitalised and well-supervised by home and host authorities. What we should do is prevent the emergence of badly managed, badly-disciplined banks, whatever their geographical dimension, as they can expose our financial systems to important risks. I hope that this humble contribution provides food for thought. As I said at the beginning of my intervention, I do not have all of the answers. But I do think that we can and should learn lessons from all experiences, both positive and negative. My words reflect the experience that we have had with our global banks in the last three years. But of course, past successes are not, per se, a guarantee of future success. Sophocles wrote in one of his tragedies that “we cannot call a mortal being happy until he’s passed beyond life free from pain”. Following the same principle of precaution, neither supervisors nor credit institutions should succumb to the temptation of unfounded optimism about the future. This is the reason why we will continue pushing for a very intense supervisory process for these global institutions and we will ensure that they are complying with the highest standards in any field.
The expansion of global banks through subsidiaries provides for this deep involvement of the local supervisor. This may be a more effective – and therefore safer – arrangement, as it provides for a double layer of supervision, by both home and local supervisors. Moreover, from the group’s perspective, the combination of decentralized management and strong controls at the parent company creates as well a double layer of control within the group. This can have a drawback in terms of higher costs but some international active banks have demonstrated that it can be compatible with a good efficiency ratio. The subsidiaries model is one way of approaching this issue, but I am very conscious that it is not the only one. Nor is it suitable for all banks. It depends on many factors, including the type of business conducted by the institution – retail, investment banking etc. So let me be clear that I am not prescribing this model, and that I do not think it is the answer in all circumstances. But it is a factor that makes certain international groups less dangerous for the rest of the system in terms of their likely impact in case of difficulties. In other cases, the institutions concerned may also be able to argue that they have other controls, or business models, in place which reduce their risks. The validity of all reasonable approaches should be explored. In this context, let me mention here the work underway in the FSB and BCBS to deal with the global SIFIs issue.