And it means that for the largest, most systemic entities in particular, in all likelihood the subsidiary will not survive the death of its parent. (For that matter, it is likely also that for many groups neither would the parent survive the death of a major subsidiary). This suggests that, as well as a coordinated approach to resolution (with SPE for highly integrated firms) so we need also to have close and committed supervisory cooperation. The third phase: how we take international supervision forward The post-crisis regulatory reforms have, I think, laid the foundations for a constructive and integrated approach to national supervision of international banks – one that can take us away from the initial response of regulatory balkanisation and towards what I have termed committed cooperation. Given the benefits that international banking brings, we are keen to be open for business, provided that business is undertaken safely. But what’s safe depends on what business is being carried out, what legal entity it’s carried out in, and what policy regime applies to those entities. For example, we have a clearly articulated risk appetite for activity undertaken in non-EEA branches, published in 2014. Our appetite is not limitless. It is driven by the equivalence of the home regulator, an appropriate agreed split of responsibilities with the home regulator, and assurances over resolution from the home regulator which embeds a coordinated approach to resolution. We pay close attention to the activities carried out within the branch, particularly if such activities are important to UK financial stability.

And the threat of contagion from the parent may remain anyway. There are of course a myriad of shared approaches between these extremes as well. What have we seen in practice? 5  Understanding international bank capital flows during the recent financial crisis; Hoggarth, Mahadeva, Martin; September 2010. BIS central bankers’ speeches  3  I would describe the approach in the run up to the crisis as one of fragmentation – with host supervisors focused on local risk in local entities and home supervisors unappreciative of some of the risks taken overseas. Host supervisors did not fully consider risks from the parent group. Information sharing was fitful. Colleges – gatherings of relevant supervisors – were fairly rudimentary. And while there were some attempts to increase home-host coordination, in practice there were material gaps. This meant that neither host nor home supervisors had sufficient information to assess the risks to domestic financial stability posed by overseas firms. A key lesson we learnt in the crisis as host supervisor was the manifestation of global risks in local entities, and the importance of home-host information sharing and coordination. For example on the wholesale side, Bear Stearns and Lehman both saw problems occur outside their UK operations, where we had little sight of developments, and which led to uncertainty, loss of confidence and a flight of short term wholesale funding. Similar issues arose on the retail side, where some overseas banks had taken significant amounts of retail deposits very quickly whilst others had provided significant lending to UK borrowers.