There are three key policy objectives of host countries which affect their supervision of foreign banks: (1) maintaining safety and soundness, (2) avoiding systemic risk, and (3) protecting depositors. I will examine how each of these policies applies when a foreign bank operates in a host country through branches or subsidiaries. Problems of supervision differ depending on which of these two forms one is considering. Of course, branches and subsidiaries are not the only forms in which banks operate abroad. They can also operate purely cross-border without a corporate presence in a host country, as when a bank in London solicits U.S. residents to place funds with the London bank. Banks may also operate abroad through agencies and representative offices. But branches and subsidiaries are the most important forms of operation, and I will concentrate on them.
