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Helleiner E. & S. Pagliari The End of an Era in International Financial Regulation? A Postcrisis Research Agenda
In International Organization 65, Winter 2011, pp. 169200

Notes:
With the 2008 financial crisis a reform of the financial regulatory regime became a top priority of global public policy (G20 etc.) 170 since 1990 scholarly attention was focused on explaining the creation and strengthening of international prudential financial standards in the context of rapidly globalizing financial markets o explanation searched for in three particular policy arenas: interstate, domestic, and transnational o now there is a need for some serious rethinking of that approach limitations revealed by the crisis in existing understandings of interstate power relations, the influence of domestic politics, and the significance of transnational actors within international regulatory politics informal regulatory convergence, regulatory fragmentation, and cooperative regulatory decentralization have to be explored The setting of international prudential regulatory standards has taken place by degrees since the 1970s (as the financial market globalization was proceeding) o Standards in banking 1975 Basel Concordat concerning banking supervision 1988 Basel Accord that set common capital standards for international banks ( Basel II 19982004) o Standards in the securities o Standards in insurance sectors o international financial standards project cross-cutting sectors, an attempt to cover multiple arenas with a single regulatory regime (1990s) banking, securities, insurance sectors, accounting, auditing, payments systems, corporate governance + hedge funds and credit-rating agencies, derivatives Analyses of the interstate political context o explain international standards with reference to the exercise of power by dominant states o relative market size as the key source of international power o the US and the EU as key players International financial standards project being developed by a small club of states then promoted them globally using market power as a leverage domestic political context as the primary source of international regulation o States as unitary actors? National interests stemming from domestic debates. Opening the black box. o principal-agent framework employed regulators attempt to balance the objectives of maintaining financial stability and of preserving the competitiveness of the influential national financial industry o domestic motives as a source of regulation 1

simon.fiala@seznam.cz experiences of Indonesia, South Korea, Malaysia, and Thailand policy choices were usually driven by domestic pro-reform interests; if there was reluctance to accept certain norms, countries manifested ability to avoid them by making compliance mechanisms inefficient transnational political context o the significance of trans-governmental networks and transnational non-state actors that transcend the international/domestic divide o various international standard-setting bodies and the FSF according to some authors, their role is significant for explaining the emergence of international standards cultivation informal trans-governmental networks o constructivist perspective Because of the esoteric subject matter, discussions within these networks take place largely outside the scrutiny of domestic politics (domestic audiences and politicians are rarely even aware of them) networks foster common knowledge and shared understandings among the officials involved trans-governmental networks bypass governments in maintaining the common grounds for regulation o transnational non-state actors in international regulatory politics financial industry groups and lobbies Private sector actors maintaining private standards private institutions, individual financial exchanges, clearing houses international public authorities often endorse private standards H: international regulatory policymaking has been increasingly captured by transnational private financial interests 175 The crisis has challenged understandings of all three contexts o important limitations revealed with the advent of the crisis Reconceptualising interstate power relations o diffusion of power in global finance the US and the EU are not as much in charge as thought o emerging powers now play much larger role in international financial regulation in the midst of the crisis the the US and the EU plead for cash at both private and governmental institutions in the emerging markets (e.g. Chinese banks) widening of the clubs involved in international standard-setting G20 the membership of key international standard-setting bodies was widened o BCBS, FSFFSB (Financial Stability Board) o Limitation of past scholarships focus on relative market size as the key source of power in international financial regulatory politics revealed new research topics Not just juicy financial markets as determinant of clout, but more importantly internationally significant investors and institutions We need to understand significance of this different kind of market power Not just power-as-influence, but also power-as-autonomy

simon.fiala@seznam.cz The capacity to impose regulation standards on others The capacity to exercise policy independence (ability to act unilaterally) o E.g. the enhanced regulatory initiatives of the EU o E.g. China not enhancing its influence, but maintaining increasing independence and therefore capacity to adjust domestic regulatory policies without reference to the outside world Changing domestic politics in core states 178 o assumption challenged: the main actors in international regulatory harmonization are regulatory agencies elected policymakers became more involved, overruled international financial technocrats (reversal of pre-crisis trends) in the light of reassertion of political actors in the financial regulation arena the composition of these actors motivations have to be better understood (e.g. domestic pressures) o the way domestic societal actors engaged in shaping international financial regulation changed formerly too complex and too opaque for societal actors to be interested in now mobilization of corporate actors outside the financial sector as well as citizens We need to know more about how the mobilization of these groups beyond the financial industry can influence the direction of state policy toward international regulatory standards o Financial industry in leading powers as a cohesive group with uniform preferences? divisions emerged e.g. banks would like to see tighter regulation of credit-rating agencies etc. theorists have to treat the preferences of constituent parts of the industry more finely and embrace more context-specific analyses o private capture of financial regulatory policymaking causes 180 not just deregulatory policies sponsored by the private financial sector also the prestige and cultural capital the sector amassed during the boom years personal interconnection between regulators and financial industry radical intellectual conformism cycles of deregulation, followed by crises and reregulation need for further understanding o the need for structural analyses inspecting how financial regulation bodies relate to governments in various increasingly important cultural areas e.g. in China state owned financial sector incl. regulation varieties of capitalism o new domestic political dynamics in core countries revealed; new patterns of political dynamics of emerging powers need to be incorporated New constraints on transnational politics o Assumption: trans-governmental networks operate insulated from their respective domestic political contexts not guaranteed nowadays, autonomy revoked Technocratic networks tend to lead in the time of peace but follow in crises The power of transnational private actors is more contingent than the precrisis literature suggested 3

simon.fiala@seznam.cz Crisis shook the in ideas in which technocratic consensus was embedded legitimacy of the Anglo-American model of regulatory neoliberalism undermined difficulties of maintaining technocratic consensus may be intensified by increasing diversity of shareholders o Will the new members of regulatory clubs disturb the regulatory common sense or will they be socialized into it? It is necessary to investigate and theorize the ways in which transnational political processes are nested within the domestic and interstate political contexts Insights from a more integrative approach: toward a weakening of international standards? o Analysts should: Innovate their toolkit of analytical approaches and notions They should seek a more integrative approach overcoming the neat boundaries of domestic/interstate/transnational o The claim that international standards will strengthen is grounded in scholarship concerning the politics of international (interstate only) prudential regulation If we take the integrative approach, the durability of this trend of everstrengthening official international standards is called into question Consensus will be hard to reach because: The newfound variety of actors In the international arena the wider domestic politicization of financial regulation triggered by the crisis (intrastate international consensus) global banks are global in life, but national in death greater emphasis on host country rules, which bear the costs when something happens weakening of the autonomy of trans-governmental technocratic networks but there is hope: the FSB (replacing the FSF) as the fourth pillar of world economic architecture increased budget, responsibilities, more strict obligations for members o New outcomes to explain Governments have motivation to synchronize regulatory policies, but more likely regulatory divergence rival standards, sham standards, mock compliance sign of rebellion towards the idea of united standards Needs to be better understood Decline of one size fits all global standards Greater host country regulation o An alternative: Cooperative decentralization - a system of mutual recognition of varying national/regional standards o desirable forms of financial regulation differ across countries depending on their preferences and levels of development o more segmented architecture, but having respect for national diversity o coordination internationally at the level of common broad principles (supported by FSB and other global regulatory institutions) 4

simon.fiala@seznam.cz a thin veneer of international co-operation superimposed on strong national regulations Establishment of global principles for prudential supervision, giving states discretion in their design and implementation o New World Financial Organization should be created o Theorizing regulatory divergence Certain kinds of international cooperation required to sustain the scenario of cooperative decentralization (different than for harmonized intl standards) Activities centred on information-sharing, research collaboration, international early warning systems, and capacity building Establishment of penalizing jurisdictions = combination of soft and hard power Everything speaks in favour of the system of cooperative decentralization But there are dissimilar incentives in various regions and various industries, and so the resulting system will not be uniform The crisis shattered the previous consensus on how to make the system shock-proof on all the political levels the crisis would therefore signal the end of an era in both the politics of international financial regulation as well as scholarship on this topic o More attention should be devoted to the scenario of cooperative decentralization, because that seems to be where we are heading o