Some MoUs focus primarily on supervision, whereas others involve crisis management as well. Notably, they are not legally binding and give the national authorities considerable scope for discretion. Although the emergence of these MoUs is very positive, they are no guarantee for efficient crisis management. Probably, these MoUs will work well under normal conditions. And they will also be most helpful in facilitating coordination in some financial crises. However, in a more wide-spread crisis involving a large cross-border bank, MoUs alone will probably be insufficient. Take, for example, the issue of assessments. We have in Europe in principle agreed to share each other’s views and assessments in the event of a distress scenario. However, to be able to act decisively in a crisis situation involving a large cross-border bank, you would preferably need a joint assessment between the countries involved. I don’t think it would be too speculative to think that each country in an acute situation would be prone to present an assessment that supports its national interests as part of a negotiation strategy. Arriving at a joint assessment may therefore prove difficult, and above all take valuable time away from crisis management. To be able to act efficiently in a crisis situation, it is instrumental that conflicts of interests, as far as possible, are taken care of in advance. For that you need something more than the MoUs we have seen so far.
The governments, in  8  BIS Review 39/2006  turn, rely on their ability to raise tax. Such a system would of course demand very strict and well thought-out rules governing what actions the fund should be allowed to take in the case of a bank failure. These rules could be inspired, for example, by the US FDIC’s very strict mandate to always choose the least cost solution. Among other things, this would in some cases mean allowing shareholders as well as uninsured depositors and debt holders to lose their money. One would of course also have to think hard about what formula to use for burden sharing. In my opinion, I think a fixed key would probably be the most practical choice. I might mention that there does, in fact, already exist one type of burden sharing arrangement in the EU today, and that is for topping up the national deposit guarantee schemes for foreign branches. Although the potential sums involved in these topping-up schemes are insignificant in comparison to the potential costs of a large cross-border bank failure, one could perhaps draw some inspiration and build on such an existing arrangement. Another source of inspiration, where an ex ante determined key for obligations to provide liquidity is used, are the IMF financing system and its second line defence in the form of General Agreements to Borrow and New Agreements to Borrow. These burden sharing arrangements have been successfully in use for half a century.