What finance wants: explaining change in private regulatory preferences toward sovereign debt restructuring

Abstract

It is widely assumed that when private financial actors seek to influence the regulation of global finance, their preference is for fewer or weaker rules. But is this preference tied to fixed material interests, or is it more malleable? Can it change over time? If so, why might it? I address these questions by examining a recent shift in private creditor preferences toward the regulation of sovereign debt restructuring. I argue that changed material circumstances created demand for regulatory change among creditors but did not determine the nature of their preferred solution. Instead, it was shifts in collectively-held ideas—the specific content of which was informed by important historical and contextual factors—that led private creditors to embrace stronger debt restructuring rules, despite being historically opposed to such rules. In making this argument, the article contributes to a fuller understanding of private market actors in global financial politics, challenging the assumption that these actors necessarily prefer weaker rules, and highlighting the more contingent nature of their regulatory preferences. It also contributes to wider debates about preference formation and change, highlighting important complementarities between distinct theoretical traditions, which together provide a much richer explanation of the case at hand.

Keywords:

• Global finance
• global financial governance
• financial regulation
• preferences
• preference change
• private creditors
• sovereign debt
• sovereign debt restructuring

Acknowledgements

The author would like to acknowledge the generous financial support of the Social Sciences and Humanities Research Council of Canada.

Disclosure statement

No potential conflict of interest was reported by the author.

Additional information

Notes on contributors

Skylar Brooks

Skylar Brooks is Senior Economist in the Financial Stability Department at the Bank of Canada. He holds a PhD in Global Governance from the Balsillie School of International Affairs, and his work has been published in a number of scholarly journals, including International Affairs, Global Governance, and Journal of Globalization and Development.