The Balkanisation of banking: The island defence

THE retreat from global banking took another step on February 26th when the Bank of England unveiled proposals to offer greater protection to the economy and public finances from foreign banks operating in Britain. Its tightening of the rules came just a week after the Federal Reserve had announced tough new measures to ensure that big foreign banks active in America have sufficient capital there to absorb losses on their American operations.The British move matters because of London’s role as the world’s main international banking hub. That pre-eminence has helped boost the British economy, but also poses risks that were revealed in the financial crisis of 2007-09. Foreign banks have assets of £3.4 trillion ($5.6 trillion) in Britain, representing 44% of all bank assets in the country.The Bank of England has outlined a new approach for what it, as the “host” supervisor, requires of foreign banks regulated by their “home” supervisors in their countries of origin. The rules are aimed at banks currently operating through branches instead of formal subsidiaries. This distinction is a crucial one. Subsidiaries are normally supervised by their hosts and must hold local...

via The Economist: Finance and economics Business Feeds

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