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.

Stefan Ingves: Cross-border banking regulation – a way forward: the European case Speech by Mr Stefan Ingves, Governor of the Sveriges Riksbank, at the Conference on International Financial Instability: Cross-Border Banking and National Regulation, Federal Reserve Bank of Chicago, Chicago, 16 October 2006. *  *  *  Introduction It is an honor for me to address this distinguished audience on a very timely topic. I have spent many years dealing with distressed banks in my own and by now a large number of other countries. One conclusion I have drawn from this rather odd line of work is that efficient banking regulation is needed both to reduce the risk that banks run into problems and to minimize the externalities that arise if banks actually fail. At the national level, many countries – including my own – still need to implement regulations to ensure that these risks are fully mitigated. Let me also take this opportunity to congratulate the organizers on their choice of subject for this conference. The importance of the international dimension of the regulatory set-up is growing steadily. It is only now that many banks are becoming truly cross-border, with substantial retail activities in several countries. At the same time banking regulation, in terms of supervision, oversight, deposit guarantee schemes and responsibility for financial stability, remains predominantly national. This imposes additional challenges for financial regulators. These challenges are particularly acute in Europe given the rapid growth of cross-border banks on that continent. However, the issues raised are of global concern.