6 And, such an approach would require binding agreements amongst home and host resolution authorities. Vague assurances would not do the trick, as domestic authorities could change their minds when it really mattered. Host and home authorities would need “skin in the game” to underpin co-operation. And co-operation in distressed circumstances could helpfully flow back to how supervisors work together in peacetime. An obstacle to such an approach might be that in some countries, legislation mandates preferential treatment of creditors and depositors of local entities of cross-border banks. But that might be weighed by legislatures against the current reality that when the fiscal authority finds itself injecting equity to save a bank and preserve stability, it protects worldwide creditors not just its home creditors. To be clear, I am not advocating any particular approach here. I just want the authorities to articulate the issues clearly, so that our leaders can make a choice and think through the consequences of that choice. I’m not sure that it has really been put to them up to now. And, of course, whatever is done, within Europe we would need to find an EU version that sat between national and global regimes. Summary My purpose today is not to advocate solutions. It is to identify the big issues and to float some possible avenues for discussion in the EU and internationally. The big question is clear enough. Can we resolve distressed LCFIs in an orderly way without injecting public money?

(i)  Territoriality  Territorial approaches to resolution are adopted due to potential conflicts of interest between home and host-state authorities. These may reflect, for example, host countries not wanting to rely on home countries to act in the interests of financial stability in the host country; or different or conflicting triggers and objectives for Special Resolution Regime powers. There are a number of problems with territoriality. It undermines coordinated and cooperative resolutions, and creates uncertainty by encouraging a race for assets and collateral across jurisdictions. Related to that, it reduces the effectiveness of Special Resolution Regimes by allowing host authorities to ring-fence local assets for the benefit of local creditors. And, it can even render resolution infeasible if the legal structure of an LCFI differs substantially from its operational structure, with local legal entities dependent on other parts of the group for vital services. Greater harmonisation of SRRs across the major jurisdictions might help to reduce distrust in other countries’ approaches. But harmonisation does not remove the potential conflict of interests between home and host authorities. The current debate around subsidiarisation of global commercial banking groups stems in large part from these problems. The thought is that if policymakers cannot solve the territorial problem, then they should embrace it – banking would go local, with a degree of ring fencing. That course may conceivably have wider advantages – for example, in the area of macroprudential regulation 3 it might give authorities a greater degree of influence over domestic credit conditions.