As per Core Principle for Effective Banking Supervision (No. 25) issued by the Basel Committee on Banking Supervision (BCBS) on home-host relationships, cross-border consolidated supervision requires cooperation and information exchange between home supervisors and the various other supervisors involved, primarily host banking supervisors. Banking supervisors must require the local operations of foreign banks to be conducted under the same standards as those required of domestic institutions.

The Concordat signed in 1975 among the Basel Committee members laid down the norm that no foreign banking establishment should escape supervision. As per the Concordat, supervision of foreign banking establishments called for contact and cooperation between host and parent supervisory authorities and that they should seek to remove restraints on transfer of information. The Concordat was revised in 1983 establishing the principle of consolidated supervision where host authorities were made responsible for subsidiaries. It recognized the differences in supervisory methodologies and resources, characteristics of local banking systems and supervisory cultures.

The Basel Minimum Standards of 1992 prescribed that the home supervisor conducting consolidated supervision should supervise international banks. Creation of a cross-border bank should receive the prior consent of both the host country and the home country authority and the home country authorities should have the right to gather information from their cross-border banking establishments. The host country would be responsible for determining the compliance with these three standards and it could impose restrictive measures or prohibit the establishment of banking offices.

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