(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.

But was the Concordat based on a false premiss: that the division of supervisory-labour during peacetime can carry smoothly over to the only period that really matters, distress? Because, as it happens, neither standard resolution regimes for commercial banks nor any super-SRR of the kind I have just outlined for going-concern restructurings could be applied easily to the cross-border activities of LCFIs. SRR tools cannot automatically be applied extraterritorially. It seems to me that policymakers need to face up to, and decide whether or not to fix, the really big issues about how insolvency and resolution laws are applied to internationally active financial companies. BIS Review 33/2010  3  Broadly speaking, countries’ laws apply either territorial principles to international insolvencies, consistent with separate procedures for each of a bank’s entities in different jurisdictions (so-called “separate-entity resolution”); or universal principles, consistent with a single procedure applying to the resolution of an international bank and its branches abroad, wherever they are located (“single-entity resolution”). I believe that top-level policymakers have to choose what kind of regime they want. This issue needs to be elevated above the level of middle-ranking technocrats where, through no great fault of their own, it has wallowed for too long. The issues were articulated as long as 20 years ago, following BCCI’s failure. 2 Nothing much has been done globally. So in the second half of my remarks today, I just want to sketch why this problem arises.