Larry D. Wall, María J. Nieto, and David Mayes
Working Paper 2011-6
March 2011

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The European Union (EU) has been facilitating the growth of cross-border banking groups, but bank supervision remains the responsibility of national supervisors. This mismatch has long been recognized and various proposals have been offered to address this weakness. An alternative that would retain the most important advantages of full centralization is that of centralization only for those cross-border groups that are systemically important. All other banks would remain national responsibilities. To identify some of the issues (but not necessarily the best answers) raised by partial centralization in the EU, we look to the dual banking arrangements in the United States, which has long had both federal and state charters. One issue is that of who qualifies for and/or is required to adopt an EU charter. The U.S. policy of low-cost chartering changes encourages both good and bad competition among supervisors. A second issue is that of the potential mismatch between EU responsibility for prudential supervision of some banks and national provision of deposit insurance and lender of last resort services for all banks. A third potential issue is who should provide business conduct regulation.

JEL classification: G28, F36, K23

Key words: cross-border banking

The authors thank the participants in the Symposium on Managing Systemic Risk organized by the University of Warwick, April 7–9, 2010, for their useful comments. The views expressed here are the authors' and not necessarily those of the Federal Reserve Bank of Atlanta or the Federal Reserve System. Any remaining errors are the authors' responsibility.

Please address questions regarding content to Larry D. Wall, Financial Economist and Senior Policy Adviser, Research Department, Federal Reserve Bank of Atlanta, 1000 Peachtree Street N.E., Atlanta, GA 30309-4470,, 1-404-498-8937; María J. Nieto, Senior Advisor, Banco de España, Alcalá 48, 28014 Madrid, Spain,, +34 91 338 62 86; or David Mayes, BNZ Professor of Finance, The University of Auckland, Business School, Owen G. Glenn Building, 12 Grafton Road, Auckland, New Zealand,

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