In addition, while the level of vulnerabilities associated with banks remains well below that seen prior to the global financial crisis, some segments of the non-bank financial sector exhibit particularly high levels, similar in fact to those witnessed before the crisis. Some of these vulnerabilities may be traced back to the low-for-long interest rate environment, which could be encouraging excessive risk-taking behaviour by some financial intermediaries not subject to the strict prudential requirements of banks in a relentless search for yield. As a reflection of this pattern, in several advanced economies asset valuations appear stretched in key financial markets such as those for equity and high-yield debt, as well as in property markets. The same search for yield may also have fostered an increase in leverage among relatively risky firms. As such, in recent years there has been a swift increase in the volume of lowerrated investment-grade corporate debt; this debt is vulnerable to downgrades and hence the loss of investment grade status in the face of an economic downturn. Recent years have also witnessed a dramatic increase in the issuance of collateralised loan obligations (CLOs). In this regard, there are growing concerns about the quality of the leveraged loans (i.e. loans to highly leveraged firms) that are pooled into these securities, an issue that is particularly relevant for their lower tranches. Against this background, any negative surprise in terms of the macroeconomy or monetary policy expectations could have a sizable impact on market valuations and, more broadly, on global financial stability.

This is why some wholesale banking activity lends itself more naturally to the branch structure which allows funds to flow more freely across borders. This requires regulators to work together to manage cross-border challenges to financial stability – implementing common minimum standards, sharing information and 9  building confidence in how each other will behave when things go wrong . There has been a complementary effort to make it easier to resolve international banks via a ‘single point of entry’ (SPE). Overseen in its home jurisdiction, a SPE resolution would sweep up a group’s losses from around the world and bail in its creditors at the top. The group is recapitalised and does not go into disorderly failure. 7  See Woods, Sam: Contingency planning for the UK’s withdrawal from the European Union; 7 April 2017: “…the PRA will expect those EEA bank branches which have significant retail/SME transactional deposits to discuss with it whether they need to establish a subsidiary, if they plan to continue that activity in the UK after its withdrawal from the EU”. 8 See Bailey, Andrew; Free Trade in Financial Services matters; 29 September 2017. 9 See Carney, Mark; The high road to a responsible, open financial system; 7 April 2017. 6  All speeches are available online at www.bankofengland.co.uk/speeches  6  EMBARGO: not for release before 19:30 on Wednesday 4 October 2017  Against this grain, recently the European Commission proposed that non-EU groups above a certain size or systemic importance must establish a common ‘intermediate parent undertaking’.