So, seeing the picture that logics out that there was a war in Kanto just a bit before RBY and having Red's memetic badass status in my head led me to a concept. There actually was a war, and as a result, the political situation between the different regions is precarious. There's peace, based on the strength each region has, with the idea that the Gym Leaders, Elite 4, and Champions represent the greatest part of their fighting strength, with each having something else that holds the balance.
Kanto and Johto have always been in alliance, symbolized by their shared Elite 4 and Champion, an alliance the other regions don't dare challenge. Hoenn has the known and acknowledged superior strength of it's Gym Leaders and Elite 4, as well as the strength of both Steven and Wallace, each strong enough to be a Champion. Sinnoh has proven technological prowess, as well as Cynthia, known far and wide as the absolute strongest Champion. Unova has Alder's leadership, who has shown multiple times over the years to be a cunning and ruthless strategist, with a keen understanding of his opponents. And Kalos has Mega-Evolution. All of that, plus the stories each region has of Legendary Pokemon and, in Kalos's case, a legendary super weapon.
But then, someone comes along that threatens that balance. A strong trainer is one thing. Even that Blue/Green, the other regions had no problem, since Giovanni disappeared after Red defeated him, and the guy took over as a Gym Leader. But this Red character? He's just too much. The more experienced trainers can see it by watching, and the most talented can feel it in their bones seeing him battle: he hasn't yet scratched what he's capable of, and he is already strong enough to beat Champions. And as they keep an eye on him, they can tell. He's still getting much stronger. Add to that the information they've picked up, with a fair amount of evidence to support it, that he has possession of a Pokemon genetically engineered for battle, whose strength when running wild nearly reached the abilities of an Elite 4-trained Pokemon? Every region realizes: Red can't remain as a trainer of Kanto. Even without confirmation of Mewtwo, they consider him essentially a living super weapon.
Thus, the respective governments of the regions give him an ultimatum: give up Pokemon training completely, and go live on an island that's not a part of any region, where he'll be kept under observation for the rest of his life, or try and resist, and they'll take him by force and, if he survives, he'll be kept in a prison for the rest of his life. With those options on the table, Red makes a third choice.
Mt. Silver has always sat on the Kanto/Johto border, and been a point of contention. Neither region is willing to say the other can have it, but the native Pokemon are too strong for any real settling to be done. As a result, it has always just existed as one of the few areas in the world that is essentially free from the governance of the regions. So Red takes up residence there, establishing himself to the Pokemon as the alpha. By the time the regions figure out where he went, they realize it would take nothing less than a full League's resources to get through the wild Pokemon and bring Red down. More importantly, Red doesn't suffer League flunkies to be on his mountain after they tried to take his beloved Pokemon away from him. As a result, they come to the conclusion that it's just not worth it to try and do anything with Mt. Silver or its new king.
So, because of a previous war, a cold war, and the rampant paranoia plaguing the various regions, Red winds up as essentially the reigning lord of Mt. Silver and its immediate surroundings. Of course, as time goes on, the political climate calms down, and no one is quite so paranoid about the idea of Red being associated with one region in particular, but he doesn't forgive or forget so easily, and is quite content to stay on his mountain, waiting for strong opponents to make their way to him. As a result, he also occupies a completely unique position, politically and diplomatically speaking: Mt. Silver is the only entity which is recognized as a distinct and strong power, and has absolutely no ties to any of the major regions. In other words, a powerful and neutral party.
I'm not sure where a story would go with this, except if it went for a scenario where there was another war, but I wanted to get the thoughts out there for others' opinions.