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 )

limits on economic performance obsolete. the existence of such commonalities in the anatomy of financial crisis gives rise to a number of hopes. they suggest that it is possible to develop warnings of nascent crises at an early stage. they imply that policy - makers could design and implement policies that contain or avoid such crises. yet these hopes should not give rise to complacency, still less to the belief that by tweaking our policy framework we can condemn financial crises to the past. while sharing commonalities, each financial crisis is also unique : what triggers the crisis, how it is propagated through the financial system, and which sectors are most affected are specific to each episode. such considerations bring me to the second theme of my remarks : the need for a flexible and innovative approach to crisis management. policy - makers need to be constantly alert, aware that financial turmoil is likely to emerge in a way that they did not anticipate. as a result, they must be prepared to act decisively to contain financial disruption of a form for which they were not ideally prepared. at the same time, these inevitably somewhat discretionary actions need to be embedded within a credible, rules - based and medium term - oriented framework, which ensures that the immediate needs of crisis management do not place at risk future price stability, future macroeconomic stability and future financial stability. marrying an exploitation of commonalities with a respect for specificities is the key to managing financial crises. allow me now to develop further these two themes. exploiting commonalities : a more robust policy framework all financial crises are unique, but they also share a number of commonalities. 2 for example, many crises exhibit a common evolution. the starting - point is typically structural change to the real economy – the unexpectedly rapid take off of emerging economies in the 1980s ; the emergence of a new technology ; the opening - up of new markets ; or the implementation of comprehensive fiscal and regulatory reform. while the sign the seminal discussion in the academic literature was provided by c. kindleberger ( 1978, reprinted 2009 ), manias, panics and crashes : a history of financial crises, 5th edition, wiley investment classics. of the impact of such changes on economic performance is well understood, the magnitude and timing of the impact is highly uncertain. such uncertainty is perhaps best characterised as knightian : given the novelty and magnitude of the change, uncertainty cannot easily be boiled down to a calculus of probabilities. 3 entrepreneurs and