According to European legislation, treasury functions, risk management and IT services are the most important areas of operational independence to be secured – and, therefore, they are at the heart of the home-host issue. This is particularly relevant for non-euro Members States from Central and Eastern Europe. We agree that, at least until the conditions for an MPE strategy are met, the parent banks should continue to provide support for their subsidiaries. But how to do this it is a more delicate issue. One way would be to transform subsidiaries into branches. Indeed, from an operational point of view the switch from subsidiaries to branches could bring some benefits. However, a higher burden will be placed on home countries’ authorities, as these will have to take into account and protect financial systems and economies in the host countries. The home Deposit Guarantee Scheme (DGS) will be subject to a very high pressure in case the group fails and it must pay for the guaranteed deposits. Although equal treatment and solidarity are desirable, the branches seem to escape the safetynet that has different patterns in each country. National legal frameworks for resolution and liquidation procedures would still be the main drivers in a failing situation, but these are limited. An alternative solution for securing a de facto group financial support for the subsidiaries by using market instruments would relate to MREL (minimum requirement for own funds and eligible liabilities).

In the third quarter of 2011, mounting concerns regarding sovereign debt sustainability across the euro area, coupled with the slower-than-expected recovery in U.S. real estate and labor markets intensified the downside risks regarding global economic activity. Accordingly, global economic activity forecasts were revised downwards and expectations for a further delay in the normalization of monetary policy in advanced economies grew stronger. Mounting uncertainties regarding the global economy and the deterioration in risk appetite led to capital outflows from emerging economies. This outlook not only fed into short-term inflationary pressures in emerging economies, but also highlighted concerns over growth and financial stability. 2  BIS central bankers’ speeches  1. Monetary policy developments and monetary conditions  The policies that we, as the Central Bank of the Republic of Turkey (CBRT), have been implementing since end-2010, aimed at gradually rebalancing the economy towards a robust growth composition without hampering the medium-term inflation outlook. Accordingly, we pursued policies to prevent excessive deviation of exchange rates from economic fundamentals in either direction, while also taking the necessary measures with the support of other institutions to ensure reasonable levels in loan growth rates (Chart 2 and 3). As a consequence of measures taken by the Central Bank and the Banking Regulation and Supervision Agency (BRSA), loan rates continued to rise in the third quarter (Charts 4 and 5). A marked slowdown is observed in credit growth owing to the lagged effects of  BIS central bankers’ speeches  3  measures taken and a deceleration in economic activity.