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Abstract
Global regulatory standard setting is one of the most lucrative battlefields of the international political economy. Asymmetric influence and regulatory capture in setting such standards can undermine the regulation of economic activity, with negative externalities for the society. Scholars of International Political Economy, and of global finance in particular, are in the process of revealing the mechanisms underlying such regulatory capture and failure. I contribute to this analysis with an empirical evaluation of the mechanisms underlying influence in setting such standards. I assess the influence of nine different national, transnational, and international actors in the case of global banking regulation (the Basel II framework of the Basel Committee on Banking Supervision). On the basis of a quantitative–qualitative assessment, I develop integration and rejection rates to measure influence in global regulation. My findings reveal that the key dynamic in setting global standards is the simultaneous influence of national (competition state) coalitions of politicians and firms as well as transnational harmonization coalitions of transnationally active firms and regulators. The results provide a basis for a new argument to understand regulatory capture and failure.
Acknowledgements
I am very thankful for the highly valuable comments on earlier versions of this paper by Brian Burgoon, Andreas Busch, Annette Freyberg-Inan, Martin Höpner, Andre Isidro, Tobias Jakobi, Heikki Patomäki, Bernd Schlipphak, Geoffrey Underhill, Hubert Zimmermann, and three anonymus reviewers.
Disclosure statement
The views expressed in this article are those of the author and should not be reported as or attributed to the Deutsche Bundesbank.
Supplemental data and underlying research materials
The underlying research materials for this article can be accessed on the author's website at http://romangoldbach.wordpress.com.
Notes
1. (Transnational) Capture implies that the content of global standards is heavily, if not exclusively, influenced by (transnational) banks (Stigler, Citation1971; Young, Citation2012). Regulatory failure implies that a standard fails in achieving the public good they are intended to provide/protect – in the case of banking regulation that is to reduce the risks of negative externalities stemming from internationally active banks to global financial stability.
2. Transgovernmental refers to interaction across state borders by actors from governmental administrations without formally delegated authority to represent their jurisdiction. Transnational defines public and private interaction across borders (that is not interstate) more generally.
3. During the period of investigation, the Committee included mainly the G-10, more precisely, representatives from Belgium, Canada, France, Germany, Hong Kong, Italy, Japan, Luxembourg, the Netherlands, Spain, Sweden, Switzerland, the United Kingdom, and the United States. In 2009, the G-20 emerging economies were added to the club: Argentina, Australia, Brazil, China, India, Indonesia, Korea, Mexico, Russia, Saudi Arabia, Singapore, South Africa, and Turkey.
4. See the Committee's website at the BIS: bis.org/bcbs/about.htm. Last visited on 27 July 2012.
5. For details on the Concordat, Basel I, and further agreements until 1997, see Goodhart Citation(2011).
6. However, while most jurisdictions swiftly adopted and implemented Basel II, the US implemented a selective subset of rules for a selected subset of banks (Verdier, Citation2012). As the analysis will reveal, the Basel II framework gained effect through transnational diffusion during the long negotiations – long before the final agreement was adopted.
7. However, the specific institutional designs vary. As Copelovitch and Singer (Citation2008, 666) outline, in most industrialized nations, and all participating jurisdictions of the Basel Committee, one of the two institutional designs is currently in place (or a mix of the two): banks are supervised either by the central bank or by a separate regulatory authority (where the central bank is responsible for monetary policy only).
8. This, however, is conditional upon regulators from dominant states seeing the necessity to act cooperatively – since interdependence implies that they cannot solve the problem alone without damaging international competitiveness (Singer, Citation2007).
9. One extension, however, is integrated here, namely the possibility that national stakeholders who are located in a pluralist political system (like the USA) and/or enter the standard-setting process during a later stage, can still be quite successful. A necessary condition for this to occur is that the stakeholders are capable of raising a national fire alarm, as described above. This event, however, is dependent on the decision-making mechanism to require unanimity in the transgovernmental network (like in the Basel Committee, but not in several other fora like the International Organization for Standardization.
10. Initially, further actors were considered as potentially relevant (like the IMF, the EU Commission, and rating agencies). However, these did not play a crucial role and were excluded from the analysis.
11. See Tarullo (Citation2008). For the assessment of those domestic regulatory regimes, see Busch (Citation2009) and Coleman (Citation1994).
12. An interest is counted as integrated if both the respective actor position and the policy outcome in the Basel II agreement supported a specific issue; this results in an indicator value of ‘1’. When both values are zero, the indicator consequently also scores ‘0’, which is interpreted as neutral with regard to the issue at hand. When an actor promotes a topic that is not reflected in the framework, he receives a rejection value of ‘-1’. The same applies if an actor openly rejected a certain policy which was integrated into the agreement nevertheless.
13. The online appendix provides an overview over the data and the material for replication. The first table presents the operationalization, i.e. outlines which specific organizations were operationalized as indicators for the actors. Two further tables describe in detail the data basis for the analysis. The first presents the frequencies and distribution of coded policy issues. It provides a quantitative description of the relative importance of issues during the entire process as well as during the single episodes. A second table describes the distribution of incorporated and rejected interests for each actor and for each episode of the analysis. Furthermore, a list of all documents included in the coding analysis and process tracing is presented for each episode. A second file provides a csv-spreadsheet with the exported results of the coding analysis on the basis of which the integration and rejection rates were built.
14. As outlined in the previous footnote, the online appendix includes a list of all relevant documents of the present analysis. Furthermore, I refer to the detailed process tracings of Goldbach (Citation2015), Tarullo (Citation2008), and Verdier (Citation2012).
15. The BCBS referred to these emerging-market aspects in CP-1 by explaining how to diffuse regulatory practices through the Core Principles for Effective Banking Supervision, which were to become part of the 12 key financial standards.
16. This is also reflected by the fact that the three most active stakeholders, i.e. the actors with the highest number of proposals, were the Basel Committee (28 integrated/17 rejected proposals), transnational banks (17/26), and US regulators (18/18).
17. About 250 industry comments were issued in response to the last period's CP-1.
18. The emergence was mainly due to the fact that the new operational risk capital charge in the USA would have applied to banks but not securities firms, and therefore would have tilted the domestic level playing field in markets where banks and securities firms compete.
19. The successful items of German regulators relate mainly to the early date of adoption of the transnational agreement, against the background of US actors aiming at a substantial postponement. With regard to German banks, merely two minor items were incorporated into the final agreement.