With the present supervisory set-up, there is unfortunately a risk that it will be time-consuming to achieve joint assessments, and time is a scarce resource, especially in crisis management. A fourth challenge is how to coordinate decisions by the authorities. The central bank must decide whether to grant emergency liquidity assistance or not and occasionally a bank may have to be placed under public administration. All of these decisions have to be made at short notice and typically with limited information. For this to be effective there is a need for a clear line of command. For crossborder banks where many supervisors, many central banks and many ministries of finance are involved, this is complicated to achieve. Without prior agreements on responsibilities this is going to be even more complicated, and may very well lead to suboptimal solutions. The potential inefficiencies are probably enhanced by the differences in language and legal structure. The problem is further inflated by the inter-dependencies between the different countries. The decisions by one authority will typically have repercussions in many other countries. To alleviate these problems there are today many MoUs between the authorities in the different countries – both regional and on an EU basis. Such MoUs are important to foster cooperation and information sharing but are, in my view, not sufficient. They are not legally binding and address neither the need for joint assessments nor the underlying conflicts of interest. Instead they should be seen as an important first step in facilitating the handling of cross-border institutions.

However we need to go further. Potential solutions To address these challenges four potential solutions have been discussed in various fora. The first is to establish supervisory colleges. The idea is to create specific standing committees for each individual cross-border banking group with representatives from the relevant supervisors. The recently proposed operational networks of the Committee of European Banking Supervisors (CEBS) can be seen as a first step in this direction. This is a good start but also generates a series of problems. The supervisory framework becomes very complex and scattered. Which supervisors should be part of which college? It could also undermine the likelihood of equal treatment among banks. The second is to enhance the home country’s responsibility, by giving the home supervisor additional powers not only for the group but also for all its foreign subsidiaries. One agency would thus get the responsibility for assembling information, formulating a joint assessment and coordinating decisions for all subsidiaries as well as the group level. A general problem with this solution is that it does not address the conflicts of interest. Will the home country authorities take the situation in the host countries fully into account in their decisions? How will host countries that do not share the assessment or disagree with the decision act? Also, will the authorities in a host country be willing to delegate such responsibilities to an authority in another country? BIS Review 96/2006  3  A third proposed solution is an extension of the second alternative.