Financial stability and resolution objectives

Abstract

Chapter 7 builds on the doctrines of financial law and identifies the dilemma of national financial policy and international financial stability. This chapter finds that international financial stability is a desired outcome but without binding international legal rules. International financial regulation is soft law in nature and does not have mandatory effect on national policy makers. Therefore, Chapter 7 proposes another three principles. Principle (v): Financial stability in the host jurisdictions should be able to be invoked as a public policy exception to refuse to recognise foreign resolution actions. This is because, in general, home jurisdictions have no incentive or legal obligations to take care of host interests, and it is justifiable for host jurisdictions to take this defensive legal mechanism to protect host interests. Principle (vi): There should be a narrow interpretation of financial stability in the host jurisdictions. This is because, first, financial stability is a public policy exception, and public policy exceptions must be interpreted narrowly; second, invoking the host financial stability exception broadly might impede global resolution and undermine the financial stability of home jurisdictions, which in turn may affect host stability; third, the financial stability test also exists in domestic resolution decision-making, which only concerns severe situations which are rare and exceptional. Principle (vii): A recognition request may be rejected if it is accompanied by the need for massive public funds from host jurisdictions, that is, if it would have an adverse impact on host jurisdictions' fiscal policies. However, this public policy exception should also be interpreted narrowly. Furthermore, this book holds the opinion that home jurisdictions' resolution actions may have unintended external stability effects on host jurisdictions, therefore, host jurisdictions might be free from the need to supply additional funds.