Perhaps the biggest danger for the candidate countries is that they will come under too much pressure. One such risk is the exchange rate regime. From the point of view of foreign investors, the years immediately before and after membership run the risk of being characterised by unwarranted euphoria. The inflow of capital to equity and real estate markets in these countries can be so large that asset prices and real exchange rates become overvalued. When the capital flows then wane slightly and some capital leaves the countries again, this may come as a surprise. In connection with EU membership, with fixed nominal exchange rates, even within a fairly broad band, pressure on the exchange rate can arise. The best thing then is to have clear regimes with a clear target. Several of the large countries now have inflation targets with a floating exchange rate, which is not as exposed to speculation attacks. Other smaller and very open candidate countries have currency boards in euros and have shown that they can adapt flexibly to both shocks such as the Russian crisis and rapid fluctuations in investment flows. The choice of an exchange rate regime can affect flows of foreign capital. But it does not in itself change the pressures for real appreciation and depreciation created by large capital inflows or outflows. However the actual effect will vary depending on the regime.
This would involve “territorial” countries deciding to resolve financial institutions headquartered in their own jurisdictions on a universal basis. (A possible example of this approach in the recent crisis was the FDIC’s resolution of United Commercial Bank, which involved a “purchase and assumption” 5 that extended to the Chinese subsidiary and the Hong Kong branch following coordination amongst the authorities in the US, China and Hong Kong.) A “modified” form of universalism would involve host authorities choosing to defer to and cooperate with a resolution brought by the home country authorities, provided that certain conditions held. Separate insolvency proceedings might be employed by host countries, but allowing the proceeds to be remitted to the home country, “lead” resolution. Variations might be needed for subsidiaries and branches. Subsidiaries are distinct legal entities, but they too can have worldwide creditors and claims. So it would all need to be within some kind of joined-up whole. At a high level, the preconditions for something like this might include: (1)  equitable treatment of all creditors regardless of their jurisdiction, because if creditors in host countries were likely to be penalised in a resolution brought by the home country authorities, host authorities would have a strong incentive to ring-fence;  (2)  broad harmonisation of resolution regimes across the major jurisdictions.