earnings and thus the stability of the by “ cross - border banking, ” i mean to refer broadly to activities carried on outside of a bank ’ s home country through subsidiaries and branches. i do not include direct lending or other financial transactions across national borders, whether or not facilitated by an agency in the country of the bank ’ s customer or counterparty. while such activities can raise concerns pertaining to investor protection, the volatility of financial flows, or foreign exchange policies, relevant prudential considerations will generally be limited to the country ( ies ) from which the bank is initiating the transaction and raising any funds needed to fund it. for references to many individual studies examining one or more the advantages or risks, see stijn claessens and neeltje van horen ( 2014 ), “ the impact of the global financial crisis on banking globalization, ” imf working papers 14 / 197 ( washington : international monetary fund, october ). bis central bankers ’ speeches global bank, offering counter - cyclical lending through support from the parent when host country economic conditions constrain domestic banking operations, enhancing efficiency in financial intermediation in host countries, providing specialized financial services, 2 and providing price or product competition for banking services in host countries. the magnitude of these benefits obviously differs from country to country, depending on a variety of factors. some of these benefits can be greater if foreign banks have the freedom to deploy capital and liquidity to whatever markets offer the most attractive opportunities, whereas others are achievable simply through the bank ’ s expertise, existing business relationships, and range of services. on the other side of the ledger are the risks associated with foreign banking that are distinct from risks associated with banking more generally. these risks tend to be related to the parent bank ’ s capacity to support the larger organization. reversals in the home market or other significant foreign operations may reduce the ability of the parent to support its foreign affiliates with needed capital and liquidity. even if the foreign affiliate is not itself under great stress, the weakened overall condition of the parent because of problems in other parts of the world may prompt it to retrench – often rather abruptly – by reducing activity in foreign markets in which it is active. this response may be driven either by bank management itself or at the instance of home country officials who want the bank to continue to lend in its home market. especially in countries where foreign banks account for a significant part of financial intermediation and where the

the basel committee and the fsb to provide effective monitoring mechanisms. even with higher standards in place, supervisors in home and host jurisdictions will still face challenges in assessing cross - jurisdiction vulnerabilities. more regular sharing of information and assessments among home and key host jurisdictions both formally and informally should be high on our shared agenda. at present, both those groups have useful processes for overseeing the implementation of agreed upon international standards. but they tend to be a bit formalistic, concentrating on comparing the language of domestic implementation to that of the international standards, rather than examining whether domestic practice in fact ensures substantive compliance or gaining a shared understanding of the unique risks in each market. it would, i believe, be counterproductive to establish in either the basel committee or the fsb the kind of adversarial dispute settlement process associated, for example, with the world trade organization. it is in the interest of all members of those bodies to cooperate in the shared task of overseeing internationally active banks. thus, the better approach to compliance would be one that simultaneously provides regulators with a way to work with one another and to gain deeper insight into how their counterparts in other jurisdictions are applying prudential standards. for example, there has been considerable documentation of the interjurisdictional divergence in risk weights for similar exposures under the internal models - based capital approaches of basel ii. 8 while the basel committee has been working on this issue, 9 i suspect that one of the most effective ways of promoting broadly comparable risk weighting would be to have technically competent supervisory staff from other jurisdictions participate with home regulators in the actual bank model validations, oversight, and related supervisory functions. similarly, as stress testing becomes a more important global financial stability tool, see 79 fr 17240 ( march 27, 2014 ) ; and tarullo, “ regulating large foreign banking organizations. ” see generally vanessa le lesle and sofiya avramova ( 2012 ), “ revisiting risk - weighted assets, ” imf working paper 12 / 90 ( washington : international monetary fund, march ). see stefan ingves ( 2014 ), “ finishing the job : next steps for the basel committee, ” keynote address to the ninth bcbs - fsi high - level meeting on “ strengthening financial sector supervision and current regulatory priorities, ” cape town, south africa, january 30. bis central bankers ’ speeches it will be useful to have staff experienced in stress testing at home participating in the stress testing exercises of other jurisdictions