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.

At least in the Brazilian case, there is very little empirical evidence of that. Under managed exchange rates Brazil suffered recurrent balance of payments difficulties in the 1950s and 1960s, the 1980s debt crisis, which contributed to a dramatic deterioration in macroeconomic performance in the following years, and the slowdown and crisis of the 1990s, before its final collapse in January 1999. Letting the market set the exchange rate does not mean remaining inactive when markets become dysfunctional. Thus, the Central Bank has used its reserves, during the current period of global financial turmoil, to ensure that Brazilian exporters and importers retain access to trade finance, to help Brazilian corporates rollover their debts and to provide liquidity to the spot market. Throughout this difficult period our focus has been on contributing to improve the way markets function, not to replace them. This approach is, and will remain, the cornerstone of our action in the foreign exchange market. There is no doubt that the world is currently experiencing an extremely difficult time. But it is also true that Brazil is among the countries that are better prepared to cope with the effects of the global financial crisis – a fact pointed out by several organizations in many occasions, such as the last issue of the OECD composite leading indicators, a survey encompassing 35 countries. 1 Brazilian fundamentals not only enable us to face the current environment in better conditions than most countries, but also in a much better shape than in the past.