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ABSTRACT
Regulatory networks are key elements of the global economy, but little is known about their variation. Why do some states prefer the creation of state-centered networks, while others advocate technocratic networks? This article addresses this question by examining the creation of the Financial Stability Forum (FSF) in 1999. It advances an argument about how domestic regulatory structures and state power explain the variation in regulatory networks that empower certain actors over others in shaping global financial regulation. This article finds that while the USA favored a state-centered FSF, driven by finance ministries, European states preferred a technocratic forum, driven by international bodies. This is because the USA can secure control of state-centered networks given its bargaining weight, while European states tried to constrain US power through technocratic structures, especially under conditions of domestic regulatory fragmentation. The final outcome was a state-centered FSF dictated by the USA. By analyzing primary archival material and interviews with key policymakers, this study sheds light on the state preferences and bargaining capabilities of G7 states. This article also generates portable and testable implications for the creation of other regulatory networks.
ACKNOWLEDGEMENTS
I would like to thank Martha Finnemore, Orfeo Fioretos, Amy Hsieh, Stephen Kaplan, Renate Mayntz, Kimberly Morgan, Abraham Newman, and especially Henry Farrell for their valuable comments on earlier drafts of this article. I also gratefully acknowledge the helpful suggestions made by Nicolas Véron, and the seminar participants of ‘Remaking Globalization: Comparative Capitalism and International Institutions’ at the Society for the Advancement of Socio-Economics (SASE) Annual Meeting 2012 in Cambridge, MA, and the Comparative Politics Workshop at the George Washington University (December 2013). Additional thanks go to the interview partners, three anonymous reviewers, as well as Meaghan Charlton for excellent editorial assistance.
DISCLOSURE STATEMENT
No potential conflict of interest was reported by the author.
Notes
1. Following the research traditions of Keohane and Nye (Citation1974) and Slaughter (Citation2004), this article defines ‘regulatory networks’ as regular and institutionalized transnational interactions between public or private domestic or international actors, who are engaged in regulating market activities.
2. The FSF comprised the finance ministries, central banks, and domestic regulatory agencies of the G7; international organizations such as the International Monetary Fund (IMF), World Bank, the Bank for International Settlements (BIS), and the Organization for Economic Co-Operation and Development (OECD); and global regulatory groups such as the BCBS, IOSCO, the International Association of Insurance Supervisors (IAIS), the IASB, the Committee on the Global Financial System (CGFS), and the Committee on Payment and Settlement Systems (CPSS). For its mandate, see G7 (Citation1999).
3. Please note that the author had extensive access to previously undisclosed, official government documents for this research, without the permission to directly reference these documents. Please also note that the views expressed by US Treasury officials in the interviews do not necessarily represent the views of the US Department of the Treasury. Finally, some US government documents cited in this article are available through the William J. Clinton Presidential Library.
4. For a notable exception, see Bach and Newman (Citation2014).
5. For somewhat similar ‘two-step’ approaches, see Moravcsik (Citation1998) and Drezner (Citation2007).
6. Indeed, Germany created a consolidated regulator in 2002, the Bundesanstalt für Finanzdienstleistungsaufsicht (BaFin), overseeing securities, banking, and insurance industries (Lütz, Citation2004).
7. The FSA was split up into the Prudential Regulation Authority (PRA) and the Financial Conduct Authority (FCA) as part of the Financial Services Act 2012.
8. Buck cites an internal policy paper authored by the European Commission.
9. While the UK did not parallel US global financial power, it was more powerful than Continental European states (e.g., Kapstein, Citation1989).
10. Some scholars have pointed to potential shifts in financial power since the mid-2000s, due to the growing influence of the EU and emerging economies, as well as the global financial crisis of 2007–2009 (Drezner, Citation2007; Posner, Citation2009; Helleiner and Pagliari, Citation2011).
11. Author interview, senior Bundesbank official I (15 August 2011).
12. Author interview, senior Bundesbank official I (15 August 2011). In the 1980s, Tietmeyer was G7 Sherpa under Chancellor Kohl and state secretary in the finance ministry. He was also Group of Ten (G10) chairman and the President of the Bundesbank in the late 1990s.
13. Author interview, senior Bundesbank official I (15 August 2011).
14. Author interview, senior Bundesbank official II (9 November 2012).
15. While Italy first attempted to strengthen the IMF's Interim Committee or the Joint Forum, a group consisting of the BCBS, IOSCO, and the IAIS, instead of creating a new forum, the state later favored Tietmeyer's proposal.
16. The USA initially suggested the inclusion of emerging markets into the forum in an early draft of the proposal, but later concluded that a smaller forum based on G7 membership would be more effective and meaningful.
17. Author interview, Lawrence Summers (7 November 2012). Summers was US Deputy Treasury Secretary from 1995-1999, and later US Treasury Secretary from 1999 to 2001.
18. Author interview, Donald Kohn (Washington, DC; 16 October 2012). Kohn was Vice Chairman of the Board of Governors of the US Federal Reserve System from 2006 to 2010 and held numerous positions in the Fed prior to this appointment.
19. Author interview, Edwin Truman (Washington, DC; 26 October 2012). Truman held this position from 1998-2001.
20. Author interview, Edwin Truman (Washington, DC; 26 October 2012).
21. Author interview, William Murden (Washington, DC; 18 December 2013). Murden has led the Treasury's Office of International Banking and Securities Markets for almost two decades.
22. Author interview, Mark Sobel (Washington, DC; 25 November 2013). Sobel has worked on international financial affairs at the US Treasury for over 30 years.
23. Author interview, Mark Sobel (Washington, DC; 25 November 2013).
24. Author interview, Elke König (23 April 2014).
25. Shortly after its creation, the G7 expanded membership in the FSF to Hong Kong, Australia, Singapore, and the Netherlands.
26. Author interview, Elke König (23 April 2014).
27. For example, the USA, Germany, and France agreed that financial sector representatives should not be included permanently.
28. It consists of the finance ministers and central bankers of the G7, key emerging countries, as well as the Managing Director of the IMF, the President of the World Bank, the IMF's International Monetary and Financial Committee – a body that replaced the IMF's Interim Committee as part of global financial reform in September 1999 – and the World Bank's Development Committee.
29. For a list of all members, see FATF (2014). At: http://www.fatf-gafi.org/pages/aboutus/membersandobservers/ (last accessed: 1 March 2014)
30. Future research might also explore why in the case of other regulatory networks, such as the IAIS and the BCBS, the USA did not push for the creation of state-centered regulatory networks, despite its fragmented regulatory structure in the banking and insurance industries.
Additional information
Notes on contributors
Alexander Reisenbichler
Alexander Reisenbichler is a PhD candidate in political science at the George Washington University.
