entity called a financial holding company. the new law also provides a mechanism for determining prospectively which products or services fit the definition of " financial in nature " or " incidental to financial activity " and therefore qualify as appropriate for a financial holding company. the federal reserve has been accorded a major role in deciding these issues and has also been assigned the role of umbrella supervisor of financial holding companies. as such, the federal reserve will rely as much as possible on the functional regulators of a company's subsidiary banks, securities firms, and insurance entities, but will oversee the financial soundness of the consolidated organization, including the activities that are otherwise unregulated. our focus is the potential risk these nonbank activities can present to banks. in addition, the fed, in conjunction with the treasury department, will respond to requests for determination as to whether new products and services meet the test for " financial in nature " or " incidental to financial activity " to be approved for financial holding companies. this change has made our laws more consistent with changes that occurred in the marketplace and has provided a mechanism for allowing new products as the marketplace evolves. conclusion the past decade has been a time of dynamic change in the financial services industry, and there are no signs that the pace of change will abate. an important component of this change is the growing global reach of many of our financial entities. financial regulators throughout the world will need to continue responding to these marketplace changes and providing oversight consistent with our safety and soundness responsibilities. for that reason, i look forward to today's discussion of financial markets regulation.

- border spillover effects 25. the potential spillover of nationally implemented macroprudential policies largely depend on the degree of financial cycle synchronisation, especially within the highly integrated ( economically and financially ) states, as in the case of the european union, or even more so within the currency union members with a single monetary policy. several aspects of the potential spillover should be considered when formulating the policy stance in a highly integrated environment that challenges us in pursuing financial stability. outward cross - border spillovers of systemic risk create a need for countervailing macroprudential measures, clearly emphasising the need for policy coordination and measure reciprocation. in contrast, inward spillover effect is a direct consequence of the regulatory arbitrage that motivates internationally operating financial institutions to seek organisational restructuring that minimizes regulatory costs. the issue of converting subsidiaries into branches has recently attracted a lot of attention, as some member states are actively trying to reduce this risk, 26 alongside international efforts directed towards formulating a framework for voluntary cross - border reciprocity 27. some countries, for example, try to internalize the costs of registering subsidiaries as branches by increasing depositor and retail consumer legal protection through an option for retail clients to cancel praet, p. ( 2015 ) : structural reforms and long - run growth in the euro area, intervention on the panel “ long - run growth, monetary policy and financing of the economy ” at 43rd economics conference of oesterreichische nationalbank, vienna, 15 june 2015. european central bank ( 2015 ) : a framework for analysing and assessing cross - border spillovers from macroprudential policies, financial stability review, special features, may 2015. czech national bank ( 2014 ) : box 7 : fragmentation, ring - fencing of local activities and foreign bank branches, financial stability report, 2013 / 2014. recommendation esrb / 2015 / 2 on the assessment of cross - border effects of and voluntary reciprocity for macro - prudential policy measures. bis central bankers ’ speeches liability / claim without penalty, extraordinary contributions to deposit guarantee systems, etc. the potential for intra - banking - group arbitrage could also be diminished if a macroprudential measure is applied at the appropriate level of consolidation and / or exposure location, making reciprocity arrangements a necessary condition for mitigating these effects. since it may be difficult to simultaneously hit macroprudential and monetary objectives due to the general low degree