Divergent effects of international regulatory institutions. Regulating global banks and shadow banking after the global financial crisis of 2007–2009

Abstract

The rules structuring the global economy frequently emerge from informal international regulatory institutions. A set of approaches in International Relations and International Political Economy conceptualize these institutions as negotiation arenas and deem powerful actors to determine rule creation. Others stress the change-inhibiting effects of densely institutionalized environments. Yet variation in policy outcomes of post-crisis financial regulatory reforms cannot be fully explained by either. I argue that conceptualizing institutional asset specificity helps explain international policy processes and outcomes. The institutional assets of regulatory institutions, their rules, prescriptions, and procedures of decision-making, offer divergent transaction cost reducing effects. Specific asset institutions possess narrow institutional scopes and stringently defined mandates. They reduce transaction costs by offering tested approaches and established regulatory instruments, while proving unadaptable to policy issues falling outside their scope. General asset institutions avoid constraints of specialization and can adapt to various purposes. The lower asset specificity in turn increases the ambiguity over regulatory instruments and the commensurate costs of standard development. I assess the argument by analyzing four post-crisis reform initiatives on regulating global banks and shadow banking.

Keywords:

• Financial regulation
• post-crisis reforms
• standard-setting
• policy development
• international institutions
• international cooperation

Acknowledgments

The author is very grateful for the support received during the pursuit of his dissertation at the Berlin Graduate School for Transnational Studies and Freie Universität Berlin, notably by his advisers Lora Anne Viola, Thomas Rixen, and Susanne Lütz. The present paper benefitted from invaluable comments by Stefano Pagliari and two anonymous reviewers. An earlier version of the paper won the Best Graduate Student Paper Award 2016 of the International Political Economy section of the International Studies Association, and was generously commented on by Wesley Widmaier, Louis Pauly, Abraham Newman, and Alexander Reisenbichler.

Disclosure statement

No potential conflict of interest was reported by the author.

Funding

This work was supported by Friedrich-Ebert-Stiftung, Germany.

Notes

1 Expert interview #7 (2016) Washington, D.C.; Expert interview #8 (2016) London (phone).

2 The instruments shall also enable bank resolution. The corresponding framework for financial institution resolution has been established by the FSB (2011a).

3 Expert interview #4 (2015), Washington, D.C.

4 Expert interview #6 (2015), Bern.

5 Expert interview #1 (2014), Singapore; Expert interview #2 (2014), Hong Kong SAR.

6 Expert interview #5 (2015), New York City.

7 As the SEC took the lead at IOSCO, CFTC is mainly responsible for futures markets, its internal conflicts informed the US stance at IOSCO.

8 These sectoral boundaries are reflected in, and conditioned the emergence of, the international specific asset institutions BCBS, IOSCO, and IAIS.

9 Expert interview #3 (2014), Tokyo.

Additional information

Funding

This work was supported by the Friedrich-Ebert-Stiftung, Germany

Notes on contributors

Vincent Woyames Dreher

Vincent Woyames Dreher works in the Supervisory Policies Division of the European Central Bank. He completed his PhD in International Relations at the Center for International Political Economy of the Otto Suhr Institute of Political Science at Freie Universität Berlin.