As I have mentioned before, supervisory authorities of the home country are responsible for direct supervision. However, supervisory authorities of the host country are always responsible for the financial system stability. Responsibility for the financial stability translates not only to preventive measures, but also to crisis management, including financial support to institutions or – in a broader sense – to markets that have lost their liquidity, but remain solvent. Appropriate authorities of the host country should thus have access to comprehensive information that enables a proper assessment of risk and financial standing of large financial institutions operating in its territory. The need to provide information has not been adequately articulated so far by international organisations that shape the supervisory architecture; however, the recent years have brought changes in this respect. The idea to transform the Nordea Bank, operating in the Baltic countries, into the so-called European company, and the subsequent transformation of its subsidiaries into branches, has supported the changes. For some countries, this operation means a loss of supervisory control over a significant part of the  43  16  An example of one of the first major incidents of operational nature were the problems of the Bank of New York. As a result of a computer system error in November 1985, the bank was unable to transfer to customers’ accounts the Treasury securities purchased for them, and enforce payments. In the meantime, the bank’s account was debited with payments for the securities.
The other option, described by Kohn as the “extra action” policy, provides for a deviation of current inflation from a level determined as stable, in return for an improvement of the perspectives of achieving price stability in the future. However, the extra action policy does not mean bursting speculative bubbles by central banks. It rather means “buying” additional insurance against possible negative shocks, which may happen in the future. In Kohn’s opinion, the extra action policy may be run very rarely and only where the three conditions are met: •  the central bank must be able to identify bubbles on the asset market in a timely manner and with high certainty as to the correctness of conclusions from the analysis,  •  the probability that a slight tightening of monetary policy will be able to stand against the speculative activity on a given asset market must be high,  •  the expected improvement of the future economic situation resulting from a smaller speculative bubble must be significant and higher than the costs incurred by the economy in the aftermath of running the additional action policy. In view of the available studies, it may be stated that it is extremely difficult to sufficiently fulfil the three abovementioned conditions. It may not be excluded, however, that in the future, the understanding of economic processes will improve as much as to enable running the additional action policy in justified cases.