And very recently the Financial Services Committee decided to further investigate (1) how to manage supervision of cross-border banking groups, whether subsidiary or branch structure, and (2) arrangements for cross-border crisis management. 2  BIS Review 22/2004  So, which are the developments in cross-border banking that have necessitated further consideration of the existing rules, policies and structures? Which are the regulatory challenges indicated in the title of this speech? I think the convergence of regulations is a process that, although being long and slow, is already going in the right direction. Even though, as mentioned earlier, there are still way too many differences in implementation and actual practices. But when it comes to the genuine conflicts of interest between nationally motivated regulators and an integrated European financial market, we are just in the beginning of a major rethinking. The challenges regulators have to face At the heart of the matter lies the emergence of large foreign subsidiaries and branches. The presence of foreign subsidiaries and branches is not new. What is new is that they might make up a substantial part of your domestic financial system. Whereas the typical bank group might be described as “Big mama, small daughter”, the opposite may now be increasingly true in many cases, and in particular if seen in relation to the size of the home and host countries. This is already true in most of the acceding countries. To give an example, more than 90 percent of Czech banking assets are held by foreign owned banks.
EU level harmonisation often applies to high level principles and minimum requirements, while implementation, additional requirements and enforcement is left to the member states. In practice, this becomes a barrier to integration. An EU bank will be subject to as many different reporting requirements and regulatory relationships as it has countries of operation. For a banking group involved in life insurance and securities trading this number should be multiplied by three. For instance, ABN Amro is rumoured to be dealing with 47 different regulators only in the EU. Second, today’s banking regulation was originally designed to protect the soundness and stability of the national banking system and sometimes even to politically control it. Thus, supervisors as well as central banks have national mandates and responsibilities vis-à-vis their politicians and citizens. This was all fine in the so called good old days of closed national markets. Now, however, it may sometimes be in conflict with the ultimate goal of a single market in financial services. Some of the work needed in these areas has already been started. The Brouwer reports to the Ecofin well describe some of the difficulties. The BSC Task Force on Crisis Management has taken the first steps towards a more structured approach to crisis management of cross-border banking groups, through the signing of a Memorandum of Understanding. CEBS (Committee of European Bank Supervisors) is also trying to take on some of these issues, in particular regarding the convergence of supervisory practices.