And, the banking system has become more fragmented or “balkanised”, with a preference for banks to subsidiarise in countries beyond their home state, and for regulators to wish for – and achieve – the location of more capital and larger pools of liquid assets in their jurisdictions. We should not be surprised by this, but nor should we accept that it is inevitably with us as a permanent feature. The reasons why we have seen these changes are not hard to explain. Major concerns about sovereign creditworthiness undermine stable banking activity across borders, another important lesson of history. Combined with that, as authorities we have had bad experiences in trying to deal with and resolve failed banks headquartered in other countries. It is not surprising that the natural reaction is to make sure in future we have “got the money”. Moreover, no one country is particularly responsible for this trend – the honest thing is to say that many of us have contributed to it because the alternative available at the time looked worse. And, writing rules to say that such actions should not be taken, irrespective of the underlying reasons for them, is not likely to be a success. This amounts to contradicting basic human nature. BIS central bankers’ speeches  1  But, and this is the important point, we should not design the world as if fragmentation and balkanisation are inevitably always likely to be with us.
The real progress that we have made on resolution issues makes it reasonable to start to take steps towards planning for a safe resumption of the growth of cross-border banking in ways that had been in some senses discouraged, and sometimes with a history of discouragement going back before the onset of the crisis. A good example of this is our approach towards branches from outside the European Economic Area (remember that EEA branches are governed by the Single Market legislation). Earlier this week, it was announced that the PRA will be prepared to see Chinese banks open branches here (recognising that the Bank of China already has a branch in London). I want to describe how this change can come about, and in doing so it should be clear that this is not a special arrangement for China – rather it is part of a broader policy. Branches of foreign banks (both non-EEA and EEA) have a large presence here in the UK. Currently, they account for around one third of total UK resident banking assets. Supervision of branches has therefore always been an important issue for the UK authorities. In the runup to the launch of the PRA, in April, we set out our approach to supervising subsidiaries and branches from overseas, and in this context the announcement on China is not a surprise.