Transnational Financial Regulation After the Crisis by Tony Porter

Author:Tony Porter [Porter, Tony]
Language: eng
Format: epub
ISBN: 9780415822688
Goodreads: 17242752
Publisher: Routledge
Published: 2012-08-11T00:00:00+00:00

Levels of analysis and rule making in the US government

Theorists debate the degree to which the USA sets the pace for transnational regulatory harmonization. For Simmons, the dominant financial centre innovates and other regulators then confront incentives to emulate or diverge from the new arrangements (Simmons 2001). Drezner argues that the USA and European Union (EU) preferred to raise financial codes and standards to decrease the level of financial instability, protect domestic investors and improve the functioning of capital markets (Drezner 2007). They use club intergovernmental organizations like the BCBS to promulgate common regulatory standards in an effort to avoid the cost of bailing out the private sector in a financial crisis. Singer models the 1988 Basel Accord as an exemplar for other industries wherein unelected regulators, having authority delegated from legislatures, created a new form of global governance. Regulators are caught between the regulated industry’s stability and competitiveness, and the international competitive constraints that push against higher levels of regulation (Singer 2007). Posner explains the shift toward transatlantic cooperation in terms of a Euro-American regulatory condominium characterized by close interactions among decision makers in an interdependent decision-making game with the EU. Cross-border cooperation can be attributed to the centralization of institutional authority inside Europe, with organized firms pressing the US Congress and Securities and Exchange Commission (SEC) to cooperate with the EU (Posner 2009).

While theorists across the divide acknowledge that these processes constitute “soft” and not “hard” law, the literature is far less developed concerning what happens after the international agreements are concluded, and they must be translated into binding legal instruments, or rules, at the domestic level that govern actual bank behaviour in domestic political institutions (Lowenfeld 2002). “Policy” is generally considered to be what the government actually does in any given area; thus, it comprises both the hard and the soft side of these types of agreements. As Allison and others writing on foreign policy have pointed out, governmental actions can be understood as the outcomes of states as unitary entities acting within the system of states, as procedures followed by separate organizations, and as a result of compromise and competition among them (Allison 1971; Allison and Halperin 1972; Clifford 2004). In the American system, there is no single entity that “makes” financial policy. It comes from a mixture of agencies, financial firms and political actors, who differ substantially on any particular issue and who compete to advance their own personal and organizational interests as they try to influence decisions, particularly in a crisis (Lavelle 2013).

When making financial policy, this complexity is further compounded at the domestic level in the USA by the two distinct historical regulatory paradigms that separated commercial and investment banks from the Great Depression until the decade of the 1990s. Commercial banks are subject to heavy, expensive regulation and, in turn, have access to the Federal Deposit Insurance Corporation’s (FDIC) deposit insurance, the Federal Reserve’s discount window, and the Federal Reserve’s payment system. The regulation of securities firms is built around disclosure of risk and the prevention and prosecution of insider trading and other forms of fraud.

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