in most of the acceding countries. to give an example, more than 90 percent of czech banking assets are held by foreign owned banks. what might this development then imply? consider the following three areas : supervision, deposit guarantee systems and crisis management. supervision. there are good reasons for banks to expand through branches and so be able to slim down their own internal bureaucracy, and have a single point of contact with supervisors and a substantially reduced reporting burden. but would this be accepted by national authorities? home supervisors would become responsible for banks with in some cases a systemic presence in foreign markets. host supervisors would find themselves legally limited in supervising even systemically important institutions in their own domestic market. the traditional home - host principle simply does not work for systemically important branches. the fact that we have not yet seen much of cross - border branching indicates there are some “ invisible ” barriers. one of these barriers probably is scepticism from national supervisors. with a few exceptions banks still expand through subsidiaries, which is costly and makes synergies hard to realise, and thus hampers integration. can we find a way to secure financial stability without limiting the positive drive for further integration? deposit insurance guarantees. minimum standards are set by the eu, but in practice the national guarantee systems differ widely. notwithstanding the existence of limited deposit guarantee systems, for larger banks the government will probably have to pay up the main part in the case of problems, due to lack of funds. this might be politically acceptable as long as depositors are domestic residents. however, cross - border branching extends the government guarantee to deposits of foreign residents. would it be acceptable to use tax - payers money to refund foreign depositors at a larger scale? this might pose problems both for the home and host country. the wide divergence of national systems clearly needs attention. potential solutions might include increased co - operation and harmonisation regarding fees and entry and exit rules. crisis management. national central banks have national mandates in extending emergency liquidity assistance. in a future integrated european financial market, the mandate of the lender of last resort will not be as clear - cut. how should this function be organised when the largest banks might be systemically important in several eu member countries? there will also be banks that are very important in one country while being completely insignificant in a european context. another issue is whose interest a national supervisor will protect in a crisis involving a cross - border banking group strictly its own national interest ( the case now )

always create new money to fund their expenditure and because they are not subject to normal bankruptcy legislation. 4 alsterlind et al. ( 2015 ) describe how bond purchases can affect interest rates via several different mechanisms. 5 see de rezende, kjellberg and tysklind ( 2015 ) and de rezende ( 2016 ). 6 a detailed review of the research and discussion of the view of central banks ’ finances can be found in archer and moser - boehm ( 2013 ). stella and lonnberg ( 2008 ), del negro and sims ( 2015 ) and sims ( 2016 ) discuss the importance of the balance sheet for the ability of central banks to pursue an effective monetary policy. see ernhagen, vesterlund and viotti ( 2002 ) for swedish perspectives. 3 but a central bank that is forced to create money in order to fund its expenditure cannot simultaneously pursue a monetary policy that safeguards price stability. neither is it desirable for central banks to rely on funding from the government as there is then a risk of the funding being linked to conditions being put on the bank ’ s management or actions. this is exactly why eu legislation requires a central bank to have adequate financial resources to be able to carry out its tasks independently. 7 this reasoning does not necessarily mean that a central bank must have positive equity. negative equity can be compensated for by a large amount of outstanding banknotes and coins, at least if there is confidence in the bank ’ s continued earning capacity. 8 but in sweden, the demand for cash is low and continues to fall. therefore, the riksbank can hardly count on having sufficient earning capacity in the future unless its equity remains positive. but how does this reasoning about the riksbank ’ s financial position relate to the bond purchases? bond purchases increase the risks on the riksbank ’ s balance sheet when the riksbank purchases a government bond, both the assets and the liabilities on our balance sheet increase. the bonds purchased by the riksbank are of course reported as an asset. but we fund the purchases by simultaneously selling riksbank certificates with a maturity of one week. and these certificates become a liability on the riksbank ’ s balance sheet, and the interest rate on the liability is the repo rate. as the bonds we buy have a much longer maturity ( about five years on average ) than the certificates, the riksbank has to renew the borrowing every week by selling new certificates. it