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The prudential exemption for registration of financial service providers, while a step in the right direction, is completely insufficient to maintain an adequate level of macroprudential financial regulation. An adequate level of macroprudential financial regulation requires that all foreign (and domestic) financial service providers comply with all local prudential measures in their entirety, most critically including

  • Membership of local deposit insurance.
  • Compliance with local solidity requirements.
  • Compliance with the strictest local solidity requirements of all the countries an entity operates in, unless airtight compartmentalization is established between the balance sheets of business units in different countries.
  • Adherence to whatever other rules and regulations that the local financial regulator might promulgate from time to time.

Ultimate sentence of Article 4 in the same section needs to go away. The history of financial folly is replete with accounts of entire sectors of the financial system that it is in the public interest to shut down with extreme prejudice.

The duration of exceptional safeguard measures should be improved to 36 months. The historical experience is that a major reorganization of a country's financial infrastructure puts the foreign exchange and international credit markets in a state of irrational excitability for 18 to 24 months. Since nobody will want to shave as close to the historical norm as possible, a 50 % security buffer would be advisable.

Section 2 on balance of payment safeguards should contain a clause permitting discrimination which is solely on grounds of different levels of current account imbalances - it should be permissible to discriminate against countries running overtly predatory CA surpluses.

Section 5 on balance of payment safeguards should allow for the time table to be revised, both upward and downward, based on factual disagreements between reality and the expected course of events the time table is based upon.

Section 6 on balance of payment safeguards should strike all mention of the IMF, as the IMF's estimates and projections have been repeatedly and recently demonstrated to be at a substantial divergence with observable reality.

In general, the selected text only deals with financial- and macroprudential regulation. However, there is a wide divergence between the prospective treaty parties matters of consumer protection, environmental protection, data protection, health care provision, workplace safety and collective bargaining (the list is not intended to be exhaustive).

On such matters, the treaty should ideally standardize on the most restrictive standard of regulation, rather than the most sloppy. Where this is infeasible, the above reasons (and any other compelling public interest) must always be acceptable justifications for imposing regulation of a reasonable and proportional nature (as determined by the courts of the imposing signatory, as it is their citizens who have to live with the worsened regulatory protection should it be struck down).

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Wed Jul 2nd, 2014 at 11:30:24 AM EST

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