Our stress tests show it has the capital strength to keep lending through severe UK and global market adjustments. And finally, are these markets resilient or are they prone to amplifying adjustments? 6  During his speech on April 2012, ‘Some reflections on the crisis and the policy response’, Ben Bernanke proposed that the aggregate decline of house prices had eliminated nearly $ trillion in paper wealth compared to the more than $ trillion eliminated from the fall of stock prices from the dot-com crash. 5  All speeches are available online at www.bankofengland.co.uk/speeches  5  Here we’ll need to change gear and delve into some detail of the financial architecture to spot things that might be what your mission statement calls ‘deficiencies’. In the process, I hope to give you some research interests. Because my short answer is that some new developments have raised questions that we should, and are, exploring by simulating markets under stress. Let’s look at each of these in a bit more detail. 2. Are credit and commercial property markets stretched? First, a word about burden of proof. The macroprudential objective – guard against the financial system disrupting the wider economy – means we are not in the business of forecasting; we are in the business of asking ‘what could go wrong?’ rather than ‘what is most likely to happen?’ It’s in that spirit that we approach asset price risks, where one person’s stretched price might be another’s rational assessment of fundamentals.
Subsidiaries are independent legal entities, while branches are not legally independent from their parent bank. However, host country authorities have little influence over foreign banks’ crisis management. One of the key issues is whether the home country authorities, in a crisis situation, should be obliged to take into account the effects of the crisis in other countries where a bank has branches with extensive activities. 5  Borchgrevink, Henrik and Thorvald Grung Moe (2004). ”Management of financial crises in cross-border banks” Norges Bank, Economic Bulletin, no. 3/04, pp. 157-164  BIS Review 34/2005  3  There are arguments to suggest that home-country authorities should have more responsibility for host banks also in a subsidiary bank structure. This would reduce the number of authorities that banks have to relate to. It is also in line with developments in banking where an increasing number of cross-border banks are organised as global firms with subsidiary structures under central management. The question of coordination is far from being solved. One possible way forward is to transfer some responsibility to supranational institutions. As transfers of responsibilities imply transfer of control, this solution is not a simple one in political terms. In the EU, the idea of a European supervisory authority has so far met resistance. A fundamental problem – especially in the case of a financial crisis – is the lack of a corresponding supranational fiscal institution. Today, any financial support must be granted by national authorities.