For example, when discussing lender of last resort in crisis management and burden sharing in crisis resolution we now talk about home and host central banks and finance ministries, respectively. This is natural, since legally the financial liabilities for a group are ultimately carried by the parent bank. Of course, a parent can choose to default a subsidiary, but it will then have to bear the capital loss. Subsequently, in practice, the ultimate public responsibility over a group rests with the home country. … comes under strain… At first glance, the home country principle seems very neat. But take a closer look and you will see signs that this set-up was not designed for a fully integrated market. Essentially, there is a gap between, on the one hand, legal powers and mandates and, on the other hand, de facto abilities and responsibilities. Home countries are given powers over branches and subsidiaries but might be unable or unwilling to use them, while host countries are losing powers that they have been willing to use. 4  BIS Review 35/2005  This gap becomes a problem once you have a banking group or bank that is systemically relevant in a host country (see table 1). Even if there are not so many of these cases yet, I am convinced that the number will increase. The potential conflicts of interest and coordination problems are of many kinds.
In particular, the pace of growth in industrial production appears to have declined somewhat and some survey data have also indicated that there has been a certain degree of moderation. However, survey data remain at high levels and should be underpinned further by positive factors such as high employment growth. There is thus good reason to remain confident that strong growth will be sustained in the euro area. This picture is broadly supported by bond yields in the euro area. These have changed little over recent weeks. They continue to be compatible with market expectations of strong economic growth in the euro area in the medium term and with developments in consumer price inflation, which are in line with the ECB’s definition of price stability. We trust that this assessment will also increasingly be reflected in exchange rates. These have clearly lost touch with economic fundamentals and this is posing risks to the world economy. For the euro area in particular the continued undervaluation of the euro vis-à-vis other major currencies is putting upward pressure on import prices. We shall, therefore, monitor exchange rate developments closely. 1  BIS Review 97/2000  As regards developments in consumer prices, no additional euro area-wide data on the Harmonised Index of Consumer Prices (HICP) have become available since our last meeting. In September 2000 inflation rose to 2.8%, mainly as a result of higher energy prices.