therefore seek to adjust our approach to supervision for those international groups that are highly integrated. in particular since the links between them mean that they are not separable in any meaningful sense of the word, we support spe resolution for such firms. in addition we aim both to judge the risks of the uk entity in the context of the global group, and to judge the risks to the uk entity from the global group. and as with branches, we play our part as host supervisor of subsidiaries by supervising their effects on uk and global financial stability and by working with the home regulator. we do have expectations of the local business. whilst recognising that subsidiaries are not fully independent of the group, we would not expect them to be designed to be structurally loss making. and we expect subsidiaries to be capable of accreting a portion of their own capital, rather than being fully dependent on a drip - feed of capital from the parent, as this creates poor incentives and can become problematic if the parent gets into trouble. we expect high standards of governance ( including clear accountability for the management of local entities via the new senior manager ’ s regime ) and risk management, consistent with these firms ’ importance to the financial system. at this juncture we have chosen not to apply either domestic system wide stress tests or local capital buffers to reflect the systemic importance domestically of these institutions. we instead seek to develop close dialogue and greater information sharing with the home regulator on the stress exposures they see for the group as a whole, and to allow us to judge how these will affect the uk entity. all this is cooperation. but what about the risk that this coordination and insight might disappear, particularly in the event of stress? how do we create committed cooperation? in that event, the ability to set internal tlac is key. by turning debt into equity in the event of stress, internal tlac gives host supervisors the ability to upstream losses in bad states of the world and so creates a binding commitment to downstream capital from the group when it is needed. together with supervisory cooperation internal tlac ensures the home regulator is fully sighted on and committed to act to mitigate financial stability risks inside the host country. it can credibly act as a counterweight against the host supervisors ’ natural desire for higher local equity capital to be pre - positioned. at the same time internal tlac can also help to ensure that there will be sufficient locally held capital to enable an orderly wind down of that entity in

to gdp, the uk is substantially larger than the us. uk banking sector assets have risen from around 100 % of gdp to around 450 % over the last 40 years – the corresponding figure for the us stands at around 70 % 1. not only that, but overseas banks comprise almost half of those banking assets in the uk 2. in comparison, us overseas banking assets as a share of total banking assets are around a fifth 3. that means that the uk has three times as many assets from overseas banks as a share of gdp as does the us from all banks operating there. in addition we supervise in the uk more than a third as many assets from us banks as do us regulators from us banks operating in the us. furthermore we have almost twice as much international banking activity booked in the uk as anywhere else. understanding the benefits and risks of international banking matters a lot to us. we also have a unique perspective given the range and nature of business undertaken in the uk. we are host to the largest investment banks, and to global capital markets trading activities in particular. this makes us and the us one of the most interconnected countries in the global financial system. given the inter connectedness and potential complexity of the uk ’ s part of the financial system, its health undoubtedly matters a lot for global financial stability. but in addition we are host also to a great many firms which are neither focused on the domestic uk economy nor are they globally systemically important. these banks instead use the uk as a base for wholesale banking activity and trade finance whether their roots are in europe, the middle east, africa, asia or the americas. this degree of interconnectivity between the uk and the rest of the world is such that the imf noted in 2011 that, “ the stability and efficiency of the uk financial system is a global public good due to potential spillovers and thus requires the highest quality of supervision and regulation ” 4. as a major host to international financial services activity, we are highly attuned to the importance of international trade and international banking to a successful world economy. openness and trade support economic dynamism through many different channels. they promote efficient allocation of capital and risk, support greater competition, utilise comparative advantage, expand the size of the global market, and build economies of scale. why is the uk banking system so big and is that a problem? ; bush, knott, & peacock ; bank of england quarterly bulletin 2014 q4. prudential regulation