Cooperation Between Home and Host Central Banks Rather than Fragmentation of International Banks


The global move toward requiring international banking organizations to preposition liquidity at foreign subsidiaries and even branches reflects the more intense focus on entity-level and local jurisdictional-level resilience and resolvability since the global financial crisis. To some extent, the increased prepositioning is a consequence of strains that developed during and after the financial crisis in the informal understanding between central banks over the provision of lender of last resort support to an international banking organization.  Stronger cooperation among authorities could allow for reduced prepositioning. Because fewer liquid assets are necessary to meet the liquidity needs of a global organization when those resources can be deployed flexibly across jurisdictions, increased cooperation would allow for more bank resources to be devoted to lending to businesses and households while achieving the same level of financial stability.