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Banks are finally crossing borders within the European Union (EU) and the United States. Some EU member countries and some U.S. states have welcomed entry by banks from elsewhere, while others have resisted it. The article compares the processes of banking deregulation in the two unions and provides some measures of the ensuing progress—not yet complete—toward cross‐border banking. The analysis focuses on resistance to entry, the reasons for it, and the methods used to put it into effect. Apportioning responsibilities for chartering, prudential supervision and other facets of the financial safety net between the EU and its member countries give rise to active conflicts over sovereignty and compromises over efficiency. Similar conflicts raise questions over the continued viability of the dual banking system in the United States. (JEL F15, F36, G21)

Financial institutions are now crossing national borders within the EU. In balancing member states' desires for sovereignty against the effectiveness of the financial safety net, banks are currently all chartered by Member States and the safety net remains largely the responsibility of individual national governments. The paper questions whether minimally harmonized national safety nets and reliance on voluntary cooperation can keep EU banks safe and sound and prevent financial contagion. The paper examines a number of proposed remedies and recommends enhancing market discipline and adopting a system of prompt corrective action and least‐cost resolution to minimize the incidence of bailouts. (JEL F36, G18, G21)