Leveraged interests: Financial industry power and the role of private sector coalitions

ABSTRACT

The power of financial industry groups is a subject of widespread academic and public debate. Existing international political economy (IPE) research has highlighted how different resources, institutions and structural features allow financial industry groups to influence financial regulatory policymaking. In so doing, however, this literature routinely tends to neglect the wider array of interest groups beyond the particular financial industry groups being regulated. Actor plurality is usually assumed to be low or inconsequential. Such an assumption obscures the important role that actor plurality may play in the policymaking process. We present new quantitative and qualitative evidence demonstrating how global financial regulatory politics is more plural than most existing depictions would suggest. Actor plurality can have significant effects in ‘leveraging’ the influence of financial industry groups, which are often able to tie in their interests with those of other private sector groups affected indirectly by the regulation in question. We illustrate this underappreciated facet of financial industry power through a variety of case-based evidence from the formation of banking and derivatives rules in various jurisdictions, both before and after the global financial crisis of 2008–10.

KEYWORDS:

• Financial regulation
• interest groups
• derivatives
• banking
• coalitions
• business conflict

ACKNOWLEDGEMENTS

We would like to thank Raymond Hicks, Robert Keohane, Johannes Kleibl, Helen Milner, Lauren Phillips, Jonah Schulhofer-Wohl, Len Seabrooke, Irene Spagna, Eleni Tsingou as well as three anonymous reviewers for their comments and criticisms. This paper has benefited enormously from the comments received at the ECPR International Conference (September 2011), the International Relations Faculty Colloquium, Niehaus Center for Globalization and Governance, Princeton University (November 2011), European Political Science Association (June 2012), International Political Economy Society (November 2012), LSE Political Economy Group (January 2013) and the Waterloo Political Economy Group (April 2013). All remaining errors are our own. We are grateful for the support of the Social Sciences and Humanities Research Council (SSHRC) of Canada for financial assistance which enabled some of the interview-based evidence used in this article.

Notes

¹Our sample of letters is larger for finance than for other sectors, however tests with multiple random sampling yielded very similar distributional results.

²This categorization was created in an attempt to correspond as best as possible to sectoral categories of standard industry classification schemes used in actual accounting taxonomies of the economy, such as the North American Industry Classification Scheme (NAICS) and the International Standard Industrial Classification of All Economic Activities of the United Nations.

³With respect to this literature, our understanding of ‘coalitions’ is intentionally a broad one, which includes both formal coalitions, where a plurality of interest groups establish formal structures (for example, paid staff, an office, letterhead) and pledge resources, as well as instances whereby groups can be found lobbying on the same ‘sides’ of a proposed piece of regulation (see Baumgartner et al., 2009).

⁴In fact, just over half of the respondent letters to the Basel II consultation (those who were not individuals) came from outside the banking industry, with 32 per cent from within finance but outside the banking industry (what we have called ‘sectoral cohabitants’ above), 13 per cent from business groups outside the financial industry altogether, and 5 per cent and 1 per cent from research institutes and NGOs, respectively.

⁵Interviews with representatives from various private sector associations, Berlin, 1 August 2007, 4 October 2007.

⁶Interview with ZDH representative, 4 October 2007.

⁷Interviews with numerous private sector groups and regulators, New York and Washington, DC, July–August 2008.

⁸Lobbying disclosure forms reveal how the number of non-financial companies and associations lobbying the US Congress over derivatives grew more than tenfold between the years immediately before the crisis and 2009 (Scannell, 2009).