The End of an Era in International Financial Regulation? A Post-Crisis Research Agenda (original) (raw)

Varieties of Regulation: How States Pursue and Set International Financial Standards

GEG Working Paper 2013/86, 2013

What explains the form and substance of international financial standards? I propose a novel theory and present original evidence to test two central claims. First, the structure of domestic institutions and strategic interaction within a state incentivizes an actor from that state to prefer and pursue a certain form of international standard: legally or non-legally binding. Second, the type of decision-making rule used in international bargaining—not the market power or other characteristics of key players—explains the substance of the final standard. More restrictive decision-making rules, which use majority or supermajority voting, lead to greater change than open rules, which are based on consensus or unanimity voting. Domestic and international institutional settings provide enduring opportunities and constraints for key players in global finance. Supported by domestic collaboration between regulators and industry, French officials set a legally binding and deep de facto international standard for hedge fund managers over the vigorous objections of the City of London. The lack of international insurance regulation is due not to the lack of effort by the UK Financial Services Authority and its European partners, but to open decision-making rules that allow US state regulators, albeit fragmented and under-resourced, to protect the international status quo.

1 Crisis and the Reform of International Financial Regulation1

Global Finance in Crisis: The politics of …, 2010

What began in the summer of 2007 as a problem in a relatively unknown segment of the US housing finance market has very quickly turned into the most severe global financial crisis since the 1930s. The impact of this crisis has escalated far beyond its point of origin, affecting countries around the world, and spilling over from the financial system into the real economy.

New Approaches to International Financial Regulation

What has happened to scholarship on international financial regulation since the global financial crisis? This paper maps out core debates suggestive of the new intellectual terrain that emerged out of the global financial meltdown. I argue that the old-consensus in neoclassical economic theory has given way to a new mainstream institutionalist legal literature, which I term the Reformist approach. I show that this post-crisis shift of focus parallels developments in the fields of international political economy, and law and development. I argue that this Reformist literature could benefit from further engagement with what I term the “New Approaches” literature in international legal theory and in the anthropology and social studies of finance.

The governance and regulation of international finance

Environment and Planning C: Government and Policy, 2014

The extensive failures revealed by the global financial crisis have brought the reform of the existing financial regulatory architecture near to the top of the public policy agenda in Europe, the US, as well as international bodies such as the G20. Regulatory agencies in most industrialized economies have frequently been accused of having fallen 'asleep at the wheel' in the years before the crisis, and their conduct has received renewed scrutiny. However, most debates concerning the regulatory response to the crisis frequently neglect a key point: the regulation of financial markets is more than what regulators do. This insight is central to the volume written by Geoffrey P Miller and Fabrizio Cafaggi, together with Tiago Andreotti, Maciej Borowicz, Agnieszka Janczuk, Eugenia Macchiavello, and Paolo Saguato. The volume is part of a broader collaborative work investigating the mix of public and private regulation and enforcement. Among the different domains and industries, finance stands out for the extent, variety, and relevance of governance arrangements designed and administered by the same financial industry. The volume makes an important contribution to the studies of financial regulation by systematically reviewing and analyzing the diversity of these private regulation and enforcement mechanisms. Indeed, private regulatory mechanisms are to be found at a multitude of levels, starting from inside individual financial firms where internal compliance officers, internal auditors, and risk management officers perform functions that are key to the orderly functioning of financial markets. Financial industry associations gathering the key stakeholders active in a given domain also play key regulatory functions in governing some of the newest and most rapidly developing areas of financial markets, such as microfinance and derivatives, as well as in one of the most traditional areas-that is, the payment system and international accounting standards. Indeed, as the analysis of the International Swaps and Derivatives Associations (a private standard-setting body composed of the major participants in the market, for regulating credit derivatives contracts) highlights, the regulatory impact of financial industry associations is often not limited to the national sphere but also fills gaps in international regulatory architecture. These private governance arrangements, however, rarely remain completely outside of the sphere of influence of government. For example, the volume emphasizes how banking regulatory authorities that comprise the Basel Committee on Banking Supervision have come to incorporate a greater role for private regulatory mechanisms in international banking standards. The cornerstone of the international banking regulation, the Basel Agreement, relies heavily on internal modeling, processes, and risk assessments by the financial institutions that they are designed to regulate. More broadly, the domains analyzed in this book reveal a wide range of variations in the division of responsibilities between public and private actors in the process of standard setting and enforcement. What is, then, the proper allocation of regulatory authority between public and private actors? The authors take upon themselves the task of assessing the relative strengths and weaknesses of different private governance arrangements, including their legitimacy

Post‐crisis reforms in banking: Regulators at the interface between domestic and international governance

Regulation & Governance, 2017

Post‐crisis international standards have been agreed on in certain areas of banking regulation, namely capital, liquidity, and resolution, but not others, namely bank structure – why? We articulate a two‐step analytical framework that links the domestic and international levels of governance. In particular, we focus on the role of domestic regulators at the interface between the two levels. At the domestic level, regulators evaluate externalities and adjustment costs before engaging in cooperation at the international level. This analysis explains why regulators in the United States and the European Union act as pacesetters, foot‐draggers, or fence‐sitters in international standard setting; that is to say, why they promote, resist, or are neutral toward international financial standards. At the international level, we explain the outcome of international standard setting by considering the interaction of pacesetters and foot‐draggers.

Usa in the Emerging System of Global Financial Regulation

Comparative Politics (Russia)

In the globalizing world of fi nancial and economic interdependence, a polycentric, multi-level, and hierarchical system of global fi nancial regulation is emerging. The article highlights two vectors of recent development in international fi nancial regulation: the rise of cooperation through the mechanisms of the Group of Twenty (G-20) on the one hand, and the efforts to maintain the US leading role in global fi nance, on the other hand. In the circumstances of the global fi nancial crisis of 2008, the G-20 countries initiated an international reform of fi nancial regulation. According to G-20 decisions, international standard-setting organizations developed transnational regulatory regimes in the fi elds of banking, derivatives and bankruptcy resolution, and the states now implement these regimes in their jurisdictions. The so-called "soft law system", which is not legally binding, allows the states to sustain national sovereignty in their fi nancial policy. The United States play a leading role in the international fi nancial reform, as well as in the shaping of the global fi nancial regulation system. The American regulators push for extraterritorial application of the US norms and take other unilateral actions on the international arena. The article also touches upon legitimacy problems of the emerging system of global fi nancial regulation. The most important constrains are the excessive infl uence of the fi nancial industry ("regulatory capture"), the weakness of civil society participation, and also the fact that for the rest of the world the American norms lack legitimacy, as they are adopted by regulators assigned by offi cials elected by population of a foreign territory.

Global Financial Regulation after the Credit Crisis

Global Policy, 2010

Recent events have once again highlighted weaknesses in the global regulatory system. The highly complex network of bodies overseeing different parts of the financial markets failed to identify or respond to the macro trends that led to the crisis. There was too little capital in the banking system. There is also a serious accountability gap, with regulatory bodies free to work to their own timetables. And the links between macroeconomic policy makers in finance ministries and central banks, on the one hand, and regulators on the other, have been too weak. The changes made so far by the G20 summits are very modest and are unlikely to correct these flaws. There remains a particular problem in the European Union, where the crisis has shown that the single financial market requires more central coordination of regulation than the politicians have so far accepted. There remains, therefore, much unfinished business in financial regulatory reform.

Disembedding and Regulation: The Paradox of International Finance

The financial crash of 2007-8 is the latest and greatest of the crises resulting from the process of `financialisation' of the past 30 years. The breakdown of the Bretton Woods system in the early 1970s unleashed a process of liberalisation and internationalisation of finance, and a shift away from relationship-based to market-based finance, led by the UK and the US, acting in tandem as the dominant centres of global finance. Although often described as a period of deregulation, the disembedding of finance through liberalisation was accompanied by an enormous growth of formalised regulation. Although it has been generally reactive, and continually amended and reformed, regulation has mediated the processes through which the competitive and dynamic processes of change have been contested. The proliferation of regulation was national in focus, but it developed as an international process, through networks of regulators and specialists, who developed principles and standards, chang...

Transnational regulatory capture? An empirical examination of the transnational lobbying of the Basel Committee on Banking Supervision

Review of International Political Economy, 2012

Since the global financial crisis, scholars of international political economy (IPE) have increasingly relied on the concept of 'regulatory capture' to explain the weakness of regulatory oversight and, hence, regulatory failures. Yet despite the widespread use of the concept of regulatory capture, its precise mechanisms are not well understood. This paper empirically investigates this hypothesis by examining one important institution of global financial governance that has been subjected to intense private sector lobbying at the transnational level: the Basel Committee on Banking Supervision. Using extensive archival material as well as interviews with participants in the generation of the Basel II Capital Accord, I argue that while private sector lobbyists had unprecedented access to the regulatory policymaking process, this access did not always translate into influence. Furthermore, when influence was present, it sometimes had the effect of increasing regulatory stringency, rather than weakening regulation. As such, I argue that our understanding of the process of transnational policy formation would benefit from a more nuanced understanding of the contingency of private sector 'influence' over the regulatory process, rather than the extensive, all-or-nothing depiction of regulatory 'capture' that currently prevails within the IPE literature.