The Economist has a short article discussing EU proposals for financial regulation reform, in the July 4, 2009 issue, “Divided by a Common Market.”  The article is not persuaded that EU regulatory reforms, divided on at least two fundamental matters, will get very far, very soon:

The EU remains riven by two deep divides on the regulation of finance.

The first is an ideological one over the degree of freedom that should be afforded to markets. It pits a weakened and distracted Britain, whose appeal as a financial centre in less troubled times was enhanced by its “light-touch” regulation, against countries such as France and Germany, which feel their long-standing distrust of freewheeling markets has been vindicated. “There is a large body of people who say that the Anglo-Saxon model has failed,” says a person involved in the new regulations. “Now they see the chance to bury it.” Tougher regulations may also peg London back in its rivalry with other European centres such as Frankfurt or Paris.

The second divide is between countries that want large cross-border banks to be overseen by a single European supervisor and those that want them to stay under the control of home regulators. The question of who is in charge cuts to the heart of Europe’s problems. Its banks operate in a largely borderless market but are often closely watched only at home.

I spent the plane flights back and forth to Prague over the weekend mostly reading, uninterrupted and straight through, the Treasury Department’s new white paper, Financial Regulatory Reform: A New Foundation: Rebuilding Financial Supervision and Regulation (June 2009).  (I’ve linked here to the 88 page pdf, which curiously seems to be undated; a useful resource overall is the new Treasury Department website, financialstability.gov.)  I’ll comment on the US-specific aspects of the proposed regulatory reform (which cuts across a wide range of regulatory matters) over at Volokh, but here I wanted to comment briefly on the international and cross border aspects of the Obama administration’s reform proposal.

The specifically transborder aspects of the reform proposal are one of the five fundamental principles for regulatory reform underlying the proposal.  They fall into broad categories that approximately mirror what that the proposal says domestically:

• raise common regulatory standards for financial institutions, particularly capital standards and liquidity buffers;
• raise common regulatory standards for supervision of banking institutions but also any other financial institution systemically connected to the financial system, particularly with regards to leverage, but also with regards to compensation and attendant incentives to risk-taking and moral hazard;
• undertake financial markets regulatory reform, particularly to create conditions for the emergence of central exchanges for credit derivatives, regulation of securitization, and other financial markets reforms;
• raise and develop common standards for accounting and measurement of financial indicators, including fair value (‘mark to market’) accounting; and
• various other matters, such as the role and regulation of rating agencies (some of these other matters appear to be quite unrelated to financial regulation reform as such, e.g., terrorism financing).

As far as the proposals go on their own, probably the most striking aspect to those who follow the international debates is the lack of a position on the so-called “rules” versus “principles” debate.  This was almost certainly a deliberate agnosticism on the issue ….