Cross-Border Banking in Subsidiaries and Branches; Organization, Supervision and Resolution

The effective organization of cross-border banking is likely to include both subsidiaries and branches. The choice from a bank's point of view depends on the nature of financial services provided, the nature of the market served, tax systems and the types of risk the bank faces in home and host countries. In order to allow banks to choose their most efficient organizations, the architecture for supervision and crisis management needs reforms with the objective to minimize the risk of financial crisis and contagion between countries. Crisis management includes emergency liquidity assistance, structured early intervention procedures and procedures for dealing with insolvent banks. After reviewing the literature on choice of cross-border organization we discuss essential reforms that would be required to assign credible supervisory and crisis management responsibilities for banks incorporated in a particular jurisdiction to authorities in this jurisdiction while allowing cross-border banking in both subsidiaries and branches. We emphasize the need for a lex specialis for bank insolvency on the national level