As a recent paper by IMF staff stresses, a branch model for internationalization may be cheaper than one based on subsidiaries. However, it may also be riskier, both for the host and the home markets. Although nobody expects that these banks will need to be liquidated, we have seen sufficient black swans in recent years to show us that we need to hope for the best but be prepared for the worst. And if liquidation were needed, a stand-alone subsidiary model would have important advantages over a branch model, especially if there is substantial deposit taking activity at the local level. I am not saying that the liquidation of a global bank organized through subsidiaries would be an easy task. What I mean is that it would be much easier than for global banks which are deeply interconnected across countries through branches. 2  BIS central bankers’ speeches  The stand-alone subsidiaries model has an additional advantage, from the perspective of the supervisor. It is far more symmetric for the local supervisor than the alternative model, allowing them to really supervise the institution. And as a home supervisor, if a foreign bank has a significant share of a domestic market, I would rather have the domestic supervisor deeply involved in the monitoring of that bank. Our experience has taught us that local supervisors usually have a deeper knowledge and more accurate information on developments in their home banking sectors than distant parent company supervisors.
The taxpayers of some of the most developed countries of the world have been called on to support global banks headquartered in their countries. Indeed, after the Lehman bankruptcy, it is fair to say that the entire global financial system was put at risk by the difficulties of some banks operating worldwide. It quickly became clear that an unprecedented and unacceptable level of systemic risk had built up over the “boom” years. And that a significant amount of taxpayer’s money had been put at risk as a result. This prompted a forceful, and understandable, reaction from all sides. The public, bank investors, regulators, supervisors and politicians alike all agreed that we needed a profound overhaul of the treatment of systemic risk. I believe that the reactions to this challenge from the G-20, at the highest political level, as well as from the Financial Stability Board (FSB) and the Basel Committee of Banking Supervisors (BCBS), have been proportionate to the size of the problems and risks we have encountered since the outbreak of the crisis. The costs have been huge and there is widespread agreement that we cannot allow this to happen again. Nevertheless, we should also recognize that a number of global banks have managed to navigate these rough and unchartered waters without capsizing, Indeed, if you allow me to extend the metaphor, some have even been able to help to calm the waters.