So what evidence do we have on these three characteristics in real financial networks? Charts 1-3 look at the evolution in the international financial network. In particular, they look at cross-border stocks of external assets and liabilities in 18 countries at three dates: 1985, 1995 and 2005. These data can be used to gauge the scale and evolution of interconnectivity within the global financial network. In Charts 1-3, the nodes are scaled in proportion to total external financial stocks, while the thickness of the links between nodes is proportional to bilateral external financial stocks relative to GDP. 13 Table 1, meanwhile, provides some summary statistics for the international financial network, in particular measures of the skew and fat-tailedness in the degree distribution and its average path length. Three key points emerge. First, it is clear that the scale and interconnectivity of the international financial network has increased significantly over the past two decades. Nodes  8  May (2006). 9  Pröpper et al (2008). 10  May and Anderson (1991), Porterie et al (2008). 11  Watts and Strogatz (1998). 12  On the former see Albert et al (2000); on the latter see Porterie et al (2008). 13  Specifically, nodes are scaled by (Total External Assets + Total External Liabilities) for each node, and links between nodes i and j by (Total External Assetsij + Total External Liabilitiesij )/(GDPi + GDPj). The data are developed and analysed in Kubulec and Sa (2008). 6  BIS Review 53/2009  have ballooned, increasing roughly 14-fold.
Possibly, the number of authorities involved could be reduced somewhat if the mandate is based on an agreement between only the directly involved countries. At this point, it is however not very clear how such a contract could be made legally binding. Although solutions that are adapted to a specific situation are better than no solution at all, I am sceptical as to their practicability in a dynamic world. They have the same basic flaws as the model of home country lead supervision. In a constantly transforming banking landscape, relevant jurisdictions will change when principal ownership is transferred from one nationality to another. That’s why I also don’t believe in so called regional solutions. A third way, and in my opinion the most logical step in the long run, would be to focus some authority on a European level to deal with the relatively limited number of most important cross-border banks. Supervision of these banks would in my opinion benefit from the establishment of a European financial supervisor. Some opponents of this idea have claimed that proximity might then be lost, and a European supervisor wouldn’t receive enough knowledge about the markets where the institution operates. To my mind, this is not a very convincing argument. First, this problem is no less in the home-host model. Second, it is an organisational problem that can be solved. An EU supervisor would certainly employ staff from all EU countries and have local offices in the national financial centres.