increasingly concentrate different functions, such as funding, liquidity management, risk management and credit decisionmaking to specific centres of competence in order to reap the benefits of specialisation and economies of scale. with the financial integration in the eu, this specialisation also occurs cross - border. as a consequence, foreign subsidiaries ( and branches ) become less self - contained. it can no longer be taken for granted that even a large subsidiary will be able to continue its business, if the parent bank defaults – at least not in the short run. and i believe that the idea that a subsidiary could be successfully ring - fenced in its host country is merely history today, as accounts could easily be transferred from one country to another at the push of a button. even if many of the examples i will use today formally will have bearing mostly on cross - border banks with a branch structure, economically and practically, they can often just as well apply to cross - border banks with a subsidiary structure. challenges ahead although increasing cross - border integration of the financial industry is essentially a positive – and even necessary – development to enhance the economic potential for the eu area, it also means new challenges for the authorities involved. the first dimension of these challenges concerns efficiency. so far, much has been done in order to create a harmonised regulatory framework that provides a more level playing field and reducing the regulatory burden on financial institutions by creating european passports for financial services, improving supervisory cooperation and convergence, etc. the second dimension, which i will concentrate on today, concerns financial stability. more specifically, i will focus on the challenges pertaining to our ability to manage financial crises in europe. the increased risk of cross - border contagion means that it seems less likely that the next financial crisis in europe will be contained within national borders, and much more likely that it will have far - reaching consequences in a number of countries. this basically means a greater need for coordination of information and decision - making between authorities in different countries. in a crisis situation it is important to know who will do what and when. things can be seriously complicated by the existence of a number of potential conflicts of interest between the different countries involved. moreover, as the actions of one authority could have effects on other countries ’ financial systems, there are some obvious accountability concerns. the national authorities are only accountable to their respective national governments and ultimately their constituencies. the fact that integration of the banking sector started relatively early in the nordic and baltic countries means that we have encountered some

border mutual dependence, which means that no single country ’ s authorities are entirely sovereign in implementing a solution to the crisis without the risk of significant repercussions in other countries. recently, there have been a number of initiatives, regionally as well as on a european level, to enhance coordination. for example, a number of memoranda of understanding ( mous ) have been worked out and agreed, either bilaterally or multilaterally, and more mous are underway. these mous detail a number of principles and practical issues regarding the cooperation, the exchange of information and assessments between authorities and certain issues concerning the delineation of responsibilities. some mous focus primarily on supervision, whereas others involve crisis management as well. notably, they are not legally binding and give the national authorities considerable scope for discretion. although the emergence of these mous is very positive, they are no guarantee for efficient crisis management. probably, these mous will work well under normal conditions. and they will also be most helpful in facilitating coordination in some financial crises. however, in a more wide - spread crisis involving a large cross - border bank, mous alone will probably be insufficient. take, for example, the issue of assessments. we have in europe in principle agreed to share each other ’ s views and assessments in the event of a distress scenario. however, to be able to act decisively in a crisis situation involving a large cross - border bank, you would preferably need a joint assessment between the countries involved. i don ’ t think it would be too speculative to think that each country in an acute situation would be prone to present an assessment that supports its national interests as part of a negotiation strategy. arriving at a joint assessment may therefore prove difficult, and above all take valuable time away from crisis management. to be able to act efficiently in a crisis situation, it is instrumental that conflicts of interests, as far as possible, are taken care of in advance. for that you need something more than the mous we have seen so far. personally, i believe that crisis management simulation exercises involving supervisors, central banks and finance ministries in all eu countries would provide valuable ideas on how to develop and improve cooperation and coordination of financial crises. on top of the obvious need for coordination of information and decision - making, there is as i just mentioned – and i will elaborate more on this shortly – also the additional element of conflicting interests that may be an even more serious impediment to efficient crisis