By Gillian Tett/Financial Times

The Brazilian financial system has contained a striking local quirk in recent years. Unlike most other large economies, Brazil has insisted that any global bank that wanted to operate within its borders had to create subsidiaries, with their own capital, rather than branches of a head office.

This stance seemed unfashionable until quite recently. The dominant western theory before the credit bust was that capital markets were becoming increasingly globalised and integrated, which implied that banks should be able to move capital freely wherever they wanted, without worrying about national borders.

But Brazil’s stance is now stimulating a wider policy debate. Brazilian officials say one reason their financial system weathered the recent crisis relatively well was that the presence of subsidiaries enabled regulators to keep a close eye on banks – while also preventing any sudden capital flight. “This policy has served us well,” one Brazilian financial official told counterparts in Europe last week. Thus, the question now is whether other countries should follow suit and impose similar, local ring-fencing policies.

This is a suggestion that many bankers hate. Some big global banks, such as HSBC and Santander, do have a form of subsidiary structure. But most do not, and are apt to argue that national restrictions on banks would fly in the face of globalisation, while making the cost of capital much more expensive, since the use of capital would be less efficient.

However, at least two key reasons are enabling the concept to gain traction. First, the collapse of Lehman Brothers last year illustrated the problems that regulators face when trying to retrieve assets, if these can flit across a border without any control. In the case of Lehmans, billions of dollars left London just before its collapse. British lawyers are still trying to get it back.

Second, the debate on “living wills” – blueprints for how banks might dissolve themselves in a crisis – is threatening to shine a fresh light on global banking structures.

The idea of such wills was first mooted earlier this year, and British regulators have recently renamed them “recovery and resolution plans”. The Financial Services Authorityhas asked half a dozen UK-based banks to prepare such RRPs.

Paul Tucker, deputy governor of the Bank of England, is leading an international committee that will soon follow suit with 25 or so global banks.

Onecontentious issue is whether these reports will be kept confidential or not. But if the exercise gains momentum, it might produce a new level of transparency about where banks currently keep their assets, relative to their business and risks. That, in turn, might well prompt demands for more national ring-fencing of banks’ operations, as well as other forms of reorganisation.

Precisely for that reason, the emerging market members of the G20 are now backing the whole “living wills” idea. Some countries have spotted that if assets are ring-fenced, it makes it harder for global banks to flee if a crisis breaks.

Of course, as western bankers point out, such ring-fencing comes at a price – most notably, by making capital more expensive.

At a time when the world is still reeling from the cost of seemingly seamless global capital markets, however, that trade-off may yet appear more compelling.

Either way, it is worth keeping a close eye on what happens next to those living wills-cumRRPs – not just inside nations such as Brazil, but in the rest of the global financial system, too.