had international operations for many decades but that has typically been limited to wholesale markets and services to large corporations. financial services to retail customers and small and medium sized companies ( smes ) have been provided on a national or local basis. in this setting the national character of the regulatory framework has been appropriate. now this is rapidly changing, especially in europe – but also elsewhere. 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. 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. if the parent bank of a cross - border banking group defaults, it is getting more and more unrealistic to assume that the foreign subsidiaries could continue their business as usual. it would take time to establish all the necessary competence to transform such a subsidiary to an independent bank. also, the possibilities for the host country to successfully ring - fence the assets is diminishing given the speed at which funds can be transferred across borders. when there still is a clear legal difference between branches and subsidiaries with clear consequences for supervision

, the distinction becomes less important both in practical and in economic terms. fifth, and as a consequence of this merger activity, the banking market in some countries is dominated by foreign banks. in the ten new eu member states, about 70 per cent of the banking sectors are foreign owned. in estonia, foreign groups account for more than 90 per cent of all lending. my worry is that the next financial crisis in europe could have serious cross - border implications and not be bounded by national borders. as a central banker, i see it as a major responsibility to be prepared for such an event, both in terms of handling the acute problem and in finding more long - term solutions. one reason why this cross - border development is more pronounced in europe than in many other parts of the world is the long - term project of creating a single market for financial services in europe. let me be clear here. i strongly support this project. it has freed banking from its national restrictions and fostered a more efficient financial sector. it has created an environment to support higher economic growth. cross - border banking should not be seen as an economic problem but rather a challenge for the regulators and supervisors. the problem is that the regulatory framework for ensuring financial stability has not adapted as quickly and as thoroughly as needed. let me stress that historically, regulatory and supervisory convergence across borders has taken time. it cannot be expected that the optimal regulatory set - up will emerge immediate when market conditions change. the single market for financial services in europe has definitely changed the market environment for financial firms. now it is up the regulators to do their bit. regulatory challenges the question is then how the regulatory and supervisory framework could be adapted to face up to a situation where some banks play important roles in providing banking services in several countries. let me – for the sake of argument – assume that a problem occurs in a major cross - border bank under the present framework in europe. apart from the challenges to solve a problem in a purely national bank it becomes both more important and more complicated to address such a crisis. there are a number of challenges. the first challenge concerns the sharing of relevant information. for a cross - border banking group the number of authorities involved multiplies. as a consequence information sharing may be slowed down. also, compared to purely national banks, many cross - border banking groups have a more complex structure. this makes the analysis and information gathering more difficult. the functional specialization of cross - border banks also complicates supervision and information