In addition, the home country will get an explicit EU-mandate to take the interest of the other relevant countries into account in its assessments and decisions but it is not clear how this will work in practice. There is also an accountability problem with this solution. National authorities are both appointed by and accountable to the national governments and in extension to the national electorate. It may be difficult for a host country to hold the authorities in a home country responsible for a specific decision, even if its main effect is in the host country. A fourth possibility is the pan-European solution where both the mandate and responsibility for supervision are transferred from the national level to the EU-level. This would imply the creation of a European FSA, as well as granting the ECB a role as Lender of Last Resort for cross-border banks. This solution raises a number of difficult political considerations. It basically means handing over a part of the sovereignty to the EU-level. Also, at present the EU has no supra-national taxing power, so some other formula on burden sharing would have to be found. Presumably the political obstacles for this solution are large. At least in the short run, this fourth solution is not realistic. Another approach With this background, I draw three conclusions. First, the present situation with a growth of crossborder banks – with some clear examples in the European region – combined with national responsibility for supervision and financial stability is not satisfactory.

First, banks in different countries are increasingly merging and creating some genuinely cross-border banking groups, targeting retail customers and SMEs in several countries. There are now about 40 banking groups with substantial activities in more than three countries in Europe. Just to take few examples: Unicredit Group has, after the merger with Germany’s HypoVereinsbank, a market share of at least 5 percent (in terms of total assets) in Italy, Germany, Austria, Bulgaria, the Czech Republic, Hungary, Poland, Luxembourg, Slovenia as well as Slovakia. Barclays and Grupo Santander are major players in both Spain and the UK. Fortis and ING are both important in the Benelux region. Erste Bank is large in Austria, the Czech Republic, Slovakia and Hungary; KBC in Belgium and a number of eastern European countries. Nordea is central to the banking market in Sweden, Denmark, Finland and Norway. Second, banks are increasingly dependent on the international financial markets for funding, risk management etc. The inter-linkages and contagion risk between banks are probably increasing even for the banks that stick to a purely national focus. BIS Review 96/2006  1  Third, many of the cross-border banks are progressively concentrating various functions, such as funding, liquidity management, risk management, internal controls, compliance, credit decisionmaking, auditing etc, to various centers of competence. As a consequence cross-border linkages are rising. Fourth, with the increased cross-border specialization, the distinction between a branch and a subsidiary is becoming increasingly blurred. Subsidiaries are becoming less self-contained.