Globalizing from the inside out: national responses to international soft law in Latin America’s banking sector

Abstract

Building from historical institutionalist contributions, this article explains why domestic regulators implement global rules to govern their banking markets. Although this question is not new, this paper tackles it with a novel approach. It frames regulatory globalization as an inside-out process in which domestic coalitions leverage international soft law’s power resources to advance their local agendas. The article highlights how local players utilize Basel’s power resources to build state regulatory capacities and market compliance conditions and, subsequently, strengthen those capacities and conditions to prompt regulatory convergence. To test this argument, the author conducts comparative case studies with Brazil, Chile, and Mexico, which challenge the conventional wisdom on rule harmonization. While the literature correlates convergence to externally driven, market-based economies and divergence to state-led, crony economies, case studies show the highest rate of convergence in Brazil’s state-led economy and the lowest rate in Chile’s market-based economy, with Mexico in between. The article concludes that regulatory politics is an iterative institutional process that does not necessarily coincide with a country’s variety of capitalism. It also points out that local policymakers are not merely standard followers but political players who mobilize global resources to further their interests while governing finance.

Keywords:

• Banking regulation
• global rules
• Basel standards
• developing countries
• Latin America

Acknowledgments

I am thankful to Andrew Walter, who sponsored this research at Melbourne University, and Isabel Estellita for all her support during that period. I express my gratitude for the institutional support of FGV Law School and the indispensable help and collaboration of Raquel M. Pimenta, Diogo Coutinho, David Trubek, Matthew Taylor, Fabio Sa e Silva, Daniel Wang, Fabia Veçoso, Alisha Holland, and all Repal colleagues.

Disclosure statement

No potential conflict of interest was reported by the author(s).

Notes

1 This framework explains one track of financial reform resulting from financial liberalization, financial crisis, and new institutional conditions to regulate the banking market. Yet, the literature also discusses other factors driving financial liberalization and reform. For example, Pond (2018) shows how autocrats choose financial liberalization to preserve their powers or control democratic transitions; Aklin and Kern (2021) find that governments resort to financial liberalization to counterweigh the independent central banks’ toughness; Reinsberg et al. (2021) sustain that the IMF promotes financial reform, mainly Central Bank independence, to tie governments’ hands and ensure the Fund’s policy goals.

2 Interview with senior legal advisor of SBIF and the Central Bank.

3 Interview with senior legal advisor for SBIF and the Central Bank.

4 Interview with former CNBV vice president of regulation.

5 Interview with former chairman of the BCB.

6 Interview with former BCB chairman.

7 Interview with former BCB chairman.

8 Data obtained from BCB via access to information procedure.

9 Interview with BCB official.

10 See https://www.bcb.gov.br/en/statistics/graphic/statisticsgraphs/adequacaocapital.

11 See https://fred.stlouisfed.org/series/DDOI06BRA156NWDB.

12 Interview with BCB official.

13 See on this: https://www3.bcb.gov.br/sgspub/consultarvalores/consultarValoresSeries.do?method=consultarGrafico.

Additional information

Funding

This work was supported by FAPESP - Fundação de Amparo à Pesquisa do Estado de São Paulo [2019/05651-6].

Notes on contributors

Mario G. Schapiro

Mario G. Schapiro is a professor of Law and Development and Economic Regulation at FGV Law School, Sao Paulo, Brazil. He is also co-coordinator of NUDEP-FGV – Center for Law and Political Economy and a research member of CEPESP-FGV.