Compliance and international soft law: Why do countries implement the Basle Accord?

Journal of International Economic Law

Volumn 5, Issue 3, 2002, Pages 647-688

  Ho, D E ^a  

^a HARVARD UNIVERSITY   (United States)

Author keywords

[No Author keywords available]

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EID: 0036385995     PISSN: 13693034     EISSN: None     Source Type: Journal    
DOI: 10.1093/jiel/5.3.647     Document Type: Article

References (166)

1. On compliance, see, for example, Beth A. Simmons, 'Compliance with International Agreements', 1 Ann R Pol Sci 75 (1998); Abram Chayes and Antonia Chayes, 'On Compliance', 47 Int'l Org 175 (1993); and Harold H. Koh, 'Why do Nations Obey International Law?', 106 Yale LJ 2599 (1997). On soft law, see, for example, Dinah Shelton (ed), Commitment and Compliance: The Role of Nonbinding Norms in the International Legal System (2000); Charles Lipson, 'Why Are Some International Agreements Informal?', 45 Int'l Org 495 (1991); Kenneth W. Abbott and Duncan Snidal, 'Hard and Soft Law in International Governance', 54 Int'l Org 421 (2000); but cf. Francis A. Boyle, 'The Irrelevance of International Law: The Schism Between International Law and International Polities', 10 Cal W Int'l LJ 193 (1980). See also Louis Henkin, How Nations Behave (1979).
2. On compliance, see, for example, Beth A. Simmons, 'Compliance with International Agreements', 1 Ann R Pol Sci 75 (1998); Abram Chayes and Antonia Chayes, 'On Compliance', 47 Int'l Org 175 (1993); and Harold H. Koh, 'Why do Nations Obey International Law?', 106 Yale LJ 2599 (1997). On soft law, see, for example, Dinah Shelton (ed), Commitment and Compliance: The Role of Nonbinding Norms in the International Legal System (2000); Charles Lipson, 'Why Are Some International Agreements Informal?', 45 Int'l Org 495 (1991); Kenneth W. Abbott and Duncan Snidal, 'Hard and Soft Law in International Governance', 54 Int'l Org 421 (2000); but cf. Francis A. Boyle, 'The Irrelevance of International Law: The Schism Between International Law and International Polities', 10 Cal W Int'l LJ 193 (1980). See also Louis Henkin, How Nations Behave (1979).
3. On compliance, see, for example, Beth A. Simmons, 'Compliance with International Agreements', 1 Ann R Pol Sci 75 (1998); Abram Chayes and Antonia Chayes, 'On Compliance', 47 Int'l Org 175 (1993); and Harold H. Koh, 'Why do Nations Obey International Law?', 106 Yale LJ 2599 (1997). On soft law, see, for example, Dinah Shelton (ed), Commitment and Compliance: The Role of Nonbinding Norms in the International Legal System (2000); Charles Lipson, 'Why Are Some International Agreements Informal?', 45 Int'l Org 495 (1991); Kenneth W. Abbott and Duncan Snidal, 'Hard and Soft Law in International Governance', 54 Int'l Org 421 (2000); but cf. Francis A. Boyle, 'The Irrelevance of International Law: The Schism Between International Law and International Polities', 10 Cal W Int'l LJ 193 (1980). See also Louis Henkin, How Nations Behave (1979).
4. On compliance, see, for example, Beth A. Simmons, 'Compliance with International Agreements', 1 Ann R Pol Sci 75 (1998); Abram Chayes and Antonia Chayes, 'On Compliance', 47 Int'l Org 175 (1993); and Harold H. Koh, 'Why do Nations Obey International Law?', 106 Yale LJ 2599 (1997). On soft law, see, for example, Dinah Shelton (ed), Commitment and Compliance: The Role of Nonbinding Norms in the International Legal System (2000); Charles Lipson, 'Why Are Some International Agreements Informal?', 45 Int'l Org 495 (1991); Kenneth W. Abbott and Duncan Snidal, 'Hard and Soft Law in International Governance', 54 Int'l Org 421 (2000); but cf. Francis A. Boyle, 'The Irrelevance of International Law: The Schism Between International Law and International Polities', 10 Cal W Int'l LJ 193 (1980). See also Louis Henkin, How Nations Behave (1979).
5. On compliance, see, for example, Beth A. Simmons, 'Compliance with International Agreements', 1 Ann R Pol Sci 75 (1998); Abram Chayes and Antonia Chayes, 'On Compliance', 47 Int'l Org 175 (1993); and Harold H. Koh, 'Why do Nations Obey International Law?', 106 Yale LJ 2599 (1997). On soft law, see, for example, Dinah Shelton (ed), Commitment and Compliance: The Role of Nonbinding Norms in the International Legal System (2000); Charles Lipson, 'Why Are Some International Agreements Informal?', 45 Int'l Org 495 (1991); Kenneth W. Abbott and Duncan Snidal, 'Hard and Soft Law in International Governance', 54 Int'l Org 421 (2000); but cf. Francis A. Boyle, 'The Irrelevance of International Law: The Schism Between International Law and International Polities', 10 Cal W Int'l LJ 193 (1980). See also Louis Henkin, How Nations Behave (1979).
6. On compliance, see, for example, Beth A. Simmons, 'Compliance with International Agreements', 1 Ann R Pol Sci 75 (1998); Abram Chayes and Antonia Chayes, 'On Compliance', 47 Int'l Org 175 (1993); and Harold H. Koh, 'Why do Nations Obey International Law?', 106 Yale LJ 2599 (1997). On soft law, see, for example, Dinah Shelton (ed), Commitment and Compliance: The Role of Nonbinding Norms in the International Legal System (2000); Charles Lipson, 'Why Are Some International Agreements Informal?', 45 Int'l Org 495 (1991); Kenneth W. Abbott and Duncan Snidal, 'Hard and Soft Law in International Governance', 54 Int'l Org 421 (2000); but cf. Francis A. Boyle, 'The Irrelevance of International Law: The Schism Between International Law and International Polities', 10 Cal W Int'l LJ 193 (1980). See also Louis Henkin, How Nations Behave (1979).
7. On compliance, see, for example, Beth A. Simmons, 'Compliance with International Agreements', 1 Ann R Pol Sci 75 (1998); Abram Chayes and Antonia Chayes, 'On Compliance', 47 Int'l Org 175 (1993); and Harold H. Koh, 'Why do Nations Obey International Law?', 106 Yale LJ 2599 (1997). On soft law, see, for example, Dinah Shelton (ed), Commitment and Compliance: The Role of Nonbinding Norms in the International Legal System (2000); Charles Lipson, 'Why Are Some International Agreements Informal?', 45 Int'l Org 495 (1991); Kenneth W. Abbott and Duncan Snidal, 'Hard and Soft Law in International Governance', 54 Int'l Org 421 (2000); but cf. Francis A. Boyle, 'The Irrelevance of International Law: The Schism Between International Law and International Polities', 10 Cal W Int'l LJ 193 (1980). See also Louis Henkin, How Nations Behave (1979).
8. On compliance, see, for example, Beth A. Simmons, 'Compliance with International Agreements', 1 Ann R Pol Sci 75 (1998); Abram Chayes and Antonia Chayes, 'On Compliance', 47 Int'l Org 175 (1993); and Harold H. Koh, 'Why do Nations Obey International Law?', 106 Yale LJ 2599 (1997). On soft law, see, for example, Dinah Shelton (ed), Commitment and Compliance: The Role of Nonbinding Norms in the International Legal System (2000); Charles Lipson, 'Why Are Some International Agreements Informal?', 45 Int'l Org 495 (1991); Kenneth W. Abbott and Duncan Snidal, 'Hard and Soft Law in International Governance', 54 Int'l Org 421 (2000); but cf. Francis A. Boyle, 'The Irrelevance of International Law: The Schism Between International Law and International Polities', 10 Cal W Int'l LJ 193 (1980). See also Louis Henkin, How Nations Behave (1979).
9. The distinction between hard law and soft law is not clear throughout the literature. To the degree that states operate in environments without a supranational enforcement mechanism) all forms of international law are soft. I use a more tailored definition that distinguishes between the binding nature of an agreement (or as the legalization literature would have it, obligation). The Basle Accord is thereby 'softer' than NAFTA or even Article VIII commitments under the IMF Articles of Agreement. See Abbott and Snidal, above n 1, at 2 (noting that '[t]he realm of soft law begins once legal arrangements are weakened along one or more of the dimensions of obligation, precision, and delegation . . . the choice between hard law and soft law is not a binary one').
10. For exceptions of scholarly work that has provided substantial empirical evidence of compliance, see Edith B. Weiss and Harold K. Jacobson (eds), Engaging Countries: Strengthening Compliance with International Accords (1998); Beth A. Simmons, 'The Legalization of International Monetary Affairs', 54 Int'l Org 573 (2000); Beth A. Simmons, 'International Law and State Behavior: Commitment and Compliance in International Monetary Affairs', 94 Am Pol Sc Rev 819 (2000). Beth A. Simmons, 'Money and the Law: Why Comply with the Public International Law of Money?', 25 Yale J Int'l L 323 (2000).
11. For exceptions of scholarly work that has provided substantial empirical evidence of compliance, see Edith B. Weiss and Harold K. Jacobson (eds), Engaging Countries: Strengthening Compliance with International Accords (1998); Beth A. Simmons, 'The Legalization of International Monetary Affairs', 54 Int'l Org 573 (2000); Beth A. Simmons, 'International Law and State Behavior: Commitment and Compliance in International Monetary Affairs', 94 Am Pol Sc Rev 819 (2000). Beth A. Simmons, 'Money and the Law: Why Comply with the Public International Law of Money?', 25 Yale J Int'l L 323 (2000).
12. For exceptions of scholarly work that has provided substantial empirical evidence of compliance, see Edith B. Weiss and Harold K. Jacobson (eds), Engaging Countries: Strengthening Compliance with International Accords (1998); Beth A. Simmons, 'The Legalization of International Monetary Affairs', 54 Int'l Org 573 (2000); Beth A. Simmons, 'International Law and State Behavior: Commitment and Compliance in International Monetary Affairs', 94 Am Pol Sc Rev 819 (2000). Beth A. Simmons, 'Money and the Law: Why Comply with the Public International Law of Money?', 25 Yale J Int'l L 323 (2000).
13. For exceptions of scholarly work that has provided substantial empirical evidence of compliance, see Edith B. Weiss and Harold K. Jacobson (eds), Engaging Countries: Strengthening Compliance with International Accords (1998); Beth A. Simmons, 'The Legalization of International Monetary Affairs', 54 Int'l Org 573 (2000); Beth A. Simmons, 'International Law and State Behavior: Commitment and Compliance in International Monetary Affairs', 94 Am Pol Sc Rev 819 (2000). Beth A. Simmons, 'Money and the Law: Why Comply with the Public International Law of Money?', 25 Yale J Int'l L 323 (2000).
14. Basle Committee on Banking Supervision, International Convergence of Capital Measurement and Capital Standards, reprinted in 51 Banking Rep (BNA) 143 (25 July 1988) [hereafter Basle Accord].
15. Basle Committee on Banking Supervision, International Convergence of Capital Measurement and Capital Standards, reprinted in 51 Banking Rep (BNA) 143 (25 July 1988) [hereafter Basle Accord].
16. Although I do not retell the process of negotiating the Basle Accord here, my study largely relies on previous theories. For the background on the politics of the Basle Accord, which is particularly revealing in terms of the particular country preferences towards the Basle Accord, see Ethan Barnaby Kapstein, 'Resolving the Regulator's Dilemma: International Coordination of Banking Regulations', 43 Int'l Org 323 (1989); Ethan Barnaby Kapstein, 'Between Power and Purpose: Central Bankers and the Politics of Regulatory Convergence', 46 Int'l Org. 265 (1992); cf. Thomas Oatley and Robert Nabors, Redistributive 'Cooperation: Market Failure, Wealth Transfers, and the Basle Accord', 52 Int'l Org 35 (1998). For empirical analyses at the bank level on the impact of the Basle Accord, see John Douglas Wagster, 'Impact of the 1988 Basle Accord on International Banks', 51 J Fin 1321 (1996); G. J. de Bondt and H. M. Prast, 'Bank Capital Ratios in the 1990s: Cross-Country Evidence' (mimeo); and Patricia Jackson, 'Basle Committee on Banking Supervision, Capital Requirements and Bank Behavior: The Impact of the Basle Accord', Working Papers, No. 1 (April 1999) for a good review of the capital adequacy literature. For a legal analysis, see Klaus Peter Follak, 'International Harmonization of Regulatory and Supervisory Frameworks', in Mario Giovanoli (ed), International Monetary Law: Issues for the New Millennium 291 (2000); Heath Price Tarbert, 'Rethinking Capital Adequacy: The Basle Accord and the New Framework', 56 Bus L 767 (2001); and Duncan E. Alford, 'Basle Committee International Capital Adequacy Standards: Analysis and Implications for the Banking Industry', 10 Dick J Int'l L 189 (1992). For an institutionalist framework, see Beth A. Simmons, 'The International Politics of Harmonization: The Case of Capital Market Regulation' 55 Int'l Org 589 (2001). See also Robert E. Krainer, 'Banking in a Theory of the Business Cycle: A Model and Critique of the Basle Accord on Risk Based Capital Requirements for Banks', SSRN Working Paper.
17. Although I do not retell the process of negotiating the Basle Accord here, my study largely relies on previous theories. For the background on the politics of the Basle Accord, which is particularly revealing in terms of the particular country preferences towards the Basle Accord, see Ethan Barnaby Kapstein, 'Resolving the Regulator's Dilemma: International Coordination of Banking Regulations', 43 Int'l Org 323 (1989); Ethan Barnaby Kapstein, 'Between Power and Purpose: Central Bankers and the Politics of Regulatory Convergence', 46 Int'l Org. 265 (1992); cf. Thomas Oatley and Robert Nabors, Redistributive 'Cooperation: Market Failure, Wealth Transfers, and the Basle Accord', 52 Int'l Org 35 (1998). For empirical analyses at the bank level on the impact of the Basle Accord, see John Douglas Wagster, 'Impact of the 1988 Basle Accord on International Banks', 51 J Fin 1321 (1996); G. J. de Bondt and H. M. Prast, 'Bank Capital Ratios in the 1990s: Cross-Country Evidence' (mimeo); and Patricia Jackson, 'Basle Committee on Banking Supervision, Capital Requirements and Bank Behavior: The Impact of the Basle Accord', Working Papers, No. 1 (April 1999) for a good review of the capital adequacy literature. For a legal analysis, see Klaus Peter Follak, 'International Harmonization of Regulatory and Supervisory Frameworks', in Mario Giovanoli (ed), International Monetary Law: Issues for the New Millennium 291 (2000); Heath Price Tarbert, 'Rethinking Capital Adequacy: The Basle Accord and the New Framework', 56 Bus L 767 (2001); and Duncan E. Alford, 'Basle Committee International Capital Adequacy Standards: Analysis and Implications for the Banking Industry', 10 Dick J Int'l L 189 (1992). For an institutionalist framework, see Beth A. Simmons, 'The International Politics of Harmonization: The Case of Capital Market Regulation' 55 Int'l Org 589 (2001). See also Robert E. Krainer, 'Banking in a Theory of the Business Cycle: A Model and Critique of the Basle Accord on Risk Based Capital Requirements for Banks', SSRN Working Paper.
18. Although I do not retell the process of negotiating the Basle Accord here, my study largely relies on previous theories. For the background on the politics of the Basle Accord, which is particularly revealing in terms of the particular country preferences towards the Basle Accord, see Ethan Barnaby Kapstein, 'Resolving the Regulator's Dilemma: International Coordination of Banking Regulations', 43 Int'l Org 323 (1989); Ethan Barnaby Kapstein, 'Between Power and Purpose: Central Bankers and the Politics of Regulatory Convergence', 46 Int'l Org. 265 (1992); cf. Thomas Oatley and Robert Nabors, Redistributive 'Cooperation: Market Failure, Wealth Transfers, and the Basle Accord', 52 Int'l Org 35 (1998). For empirical analyses at the bank level on the impact of the Basle Accord, see John Douglas Wagster, 'Impact of the 1988 Basle Accord on International Banks', 51 J Fin 1321 (1996); G. J. de Bondt and H. M. Prast, 'Bank Capital Ratios in the 1990s: Cross-Country Evidence' (mimeo); and Patricia Jackson, 'Basle Committee on Banking Supervision, Capital Requirements and Bank Behavior: The Impact of the Basle Accord', Working Papers, No. 1 (April 1999) for a good review of the capital adequacy literature. For a legal analysis, see Klaus Peter Follak, 'International Harmonization of Regulatory and Supervisory Frameworks', in Mario Giovanoli (ed), International Monetary Law: Issues for the New Millennium 291 (2000); Heath Price Tarbert, 'Rethinking Capital Adequacy: The Basle Accord and the New Framework', 56 Bus L 767 (2001); and Duncan E. Alford, 'Basle Committee International Capital Adequacy Standards: Analysis and Implications for the Banking Industry', 10 Dick J Int'l L 189 (1992). For an institutionalist framework, see Beth A. Simmons, 'The International Politics of Harmonization: The Case of Capital Market Regulation' 55 Int'l Org 589 (2001). See also Robert E. Krainer, 'Banking in a Theory of the Business Cycle: A Model and Critique of the Basle Accord on Risk Based Capital Requirements for Banks', SSRN Working Paper.
19. Although I do not retell the process of negotiating the Basle Accord here, my study largely relies on previous theories. For the background on the politics of the Basle Accord, which is particularly revealing in terms of the particular country preferences towards the Basle Accord, see Ethan Barnaby Kapstein, 'Resolving the Regulator's Dilemma: International Coordination of Banking Regulations', 43 Int'l Org 323 (1989); Ethan Barnaby Kapstein, 'Between Power and Purpose: Central Bankers and the Politics of Regulatory Convergence', 46 Int'l Org. 265 (1992); cf. Thomas Oatley and Robert Nabors, Redistributive 'Cooperation: Market Failure, Wealth Transfers, and the Basle Accord', 52 Int'l Org 35 (1998). For empirical analyses at the bank level on the impact of the Basle Accord, see John Douglas Wagster, 'Impact of the 1988 Basle Accord on International Banks', 51 J Fin 1321 (1996); G. J. de Bondt and H. M. Prast, 'Bank Capital Ratios in the 1990s: Cross-Country Evidence' (mimeo); and Patricia Jackson, 'Basle Committee on Banking Supervision, Capital Requirements and Bank Behavior: The Impact of the Basle Accord', Working Papers, No. 1 (April 1999) for a good review of the capital adequacy literature. For a legal analysis, see Klaus Peter Follak, 'International Harmonization of Regulatory and Supervisory Frameworks', in Mario Giovanoli (ed), International Monetary Law: Issues for the New Millennium 291 (2000); Heath Price Tarbert, 'Rethinking Capital Adequacy: The Basle Accord and the New Framework', 56 Bus L 767 (2001); and Duncan E. Alford, 'Basle Committee International Capital Adequacy Standards: Analysis and Implications for the Banking Industry', 10 Dick J Int'l L 189 (1992). For an institutionalist framework, see Beth A. Simmons, 'The International Politics of Harmonization: The Case of Capital Market Regulation' 55 Int'l Org 589 (2001). See also Robert E. Krainer, 'Banking in a Theory of the Business Cycle: A Model and Critique of the Basle Accord on Risk Based Capital Requirements for Banks', SSRN Working Paper.
20. Although I do not retell the process of negotiating the Basle Accord here, my study largely relies on previous theories. For the background on the politics of the Basle Accord, which is particularly revealing in terms of the particular country preferences towards the Basle Accord, see Ethan Barnaby Kapstein, 'Resolving the Regulator's Dilemma: International Coordination of Banking Regulations', 43 Int'l Org 323 (1989); Ethan Barnaby Kapstein, 'Between Power and Purpose: Central Bankers and the Politics of Regulatory Convergence', 46 Int'l Org. 265 (1992); cf. Thomas Oatley and Robert Nabors, Redistributive 'Cooperation: Market Failure, Wealth Transfers, and the Basle Accord', 52 Int'l Org 35 (1998). For empirical analyses at the bank level on the impact of the Basle Accord, see John Douglas Wagster, 'Impact of the 1988 Basle Accord on International Banks', 51 J Fin 1321 (1996); G. J. de Bondt and H. M. Prast, 'Bank Capital Ratios in the 1990s: Cross-Country Evidence' (mimeo); and Patricia Jackson, 'Basle Committee on Banking Supervision, Capital Requirements and Bank Behavior: The Impact of the Basle Accord', Working Papers, No. 1 (April 1999) for a good review of the capital adequacy literature. For a legal analysis, see Klaus Peter Follak, 'International Harmonization of Regulatory and Supervisory Frameworks', in Mario Giovanoli (ed), International Monetary Law: Issues for the New Millennium 291 (2000); Heath Price Tarbert, 'Rethinking Capital Adequacy: The Basle Accord and the New Framework', 56 Bus L 767 (2001); and Duncan E. Alford, 'Basle Committee International Capital Adequacy Standards: Analysis and Implications for the Banking Industry', 10 Dick J Int'l L 189 (1992). For an institutionalist framework, see Beth A. Simmons, 'The International Politics of Harmonization: The Case of Capital Market Regulation' 55 Int'l Org 589 (2001). See also Robert E. Krainer, 'Banking in a Theory of the Business Cycle: A Model and Critique of the Basle Accord on Risk Based Capital Requirements for Banks', SSRN Working Paper.
21. Although I do not retell the process of negotiating the Basle Accord here, my study largely relies on previous theories. For the background on the politics of the Basle Accord, which is particularly revealing in terms of the particular country preferences towards the Basle Accord, see Ethan Barnaby Kapstein, 'Resolving the Regulator's Dilemma: International Coordination of Banking Regulations', 43 Int'l Org 323 (1989); Ethan Barnaby Kapstein, 'Between Power and Purpose: Central Bankers and the Politics of Regulatory Convergence', 46 Int'l Org. 265 (1992); cf. Thomas Oatley and Robert Nabors, Redistributive 'Cooperation: Market Failure, Wealth Transfers, and the Basle Accord', 52 Int'l Org 35 (1998). For empirical analyses at the bank level on the impact of the Basle Accord, see John Douglas Wagster, 'Impact of the 1988 Basle Accord on International Banks', 51 J Fin 1321 (1996); G. J. de Bondt and H. M. Prast, 'Bank Capital Ratios in the 1990s: Cross-Country Evidence' (mimeo); and Patricia Jackson, 'Basle Committee on Banking Supervision, Capital Requirements and Bank Behavior: The Impact of the Basle Accord', Working Papers, No. 1 (April 1999) for a good review of the capital adequacy literature. For a legal analysis, see Klaus Peter Follak, 'International Harmonization of Regulatory and Supervisory Frameworks', in Mario Giovanoli (ed), International Monetary Law: Issues for the New Millennium 291 (2000); Heath Price Tarbert, 'Rethinking Capital Adequacy: The Basle Accord and the New Framework', 56 Bus L 767 (2001); and Duncan E. Alford, 'Basle Committee International Capital Adequacy Standards: Analysis and Implications for the Banking Industry', 10 Dick J Int'l L 189 (1992). For an institutionalist framework, see Beth A. Simmons, 'The International Politics of Harmonization: The Case of Capital Market Regulation' 55 Int'l Org 589 (2001). See also Robert E. Krainer, 'Banking in a Theory of the Business Cycle: A Model and Critique of the Basle Accord on Risk Based Capital Requirements for Banks', SSRN Working Paper.
22. Although I do not retell the process of negotiating the Basle Accord here, my study largely relies on previous theories. For the background on the politics of the Basle Accord, which is particularly revealing in terms of the particular country preferences towards the Basle Accord, see Ethan Barnaby Kapstein, 'Resolving the Regulator's Dilemma: International Coordination of Banking Regulations', 43 Int'l Org 323 (1989); Ethan Barnaby Kapstein, 'Between Power and Purpose: Central Bankers and the Politics of Regulatory Convergence', 46 Int'l Org. 265 (1992); cf. Thomas Oatley and Robert Nabors, Redistributive 'Cooperation: Market Failure, Wealth Transfers, and the Basle Accord', 52 Int'l Org 35 (1998). For empirical analyses at the bank level on the impact of the Basle Accord, see John Douglas Wagster, 'Impact of the 1988 Basle Accord on International Banks', 51 J Fin 1321 (1996); G. J. de Bondt and H. M. Prast, 'Bank Capital Ratios in the 1990s: Cross-Country Evidence' (mimeo); and Patricia Jackson, 'Basle Committee on Banking Supervision, Capital Requirements and Bank Behavior: The Impact of the Basle Accord', Working Papers, No. 1 (April 1999) for a good review of the capital adequacy literature. For a legal analysis, see Klaus Peter Follak, 'International Harmonization of Regulatory and Supervisory Frameworks', in Mario Giovanoli (ed), International Monetary Law: Issues for the New Millennium 291 (2000); Heath Price Tarbert, 'Rethinking Capital Adequacy: The Basle Accord and the New Framework', 56 Bus L 767 (2001); and Duncan E. Alford, 'Basle Committee International Capital Adequacy Standards: Analysis and Implications for the Banking Industry', 10 Dick J Int'l L 189 (1992). For an institutionalist framework, see Beth A. Simmons, 'The International Politics of Harmonization: The Case of Capital Market Regulation' 55 Int'l Org 589 (2001). See also Robert E. Krainer, 'Banking in a Theory of the Business Cycle: A Model and Critique of the Basle Accord on Risk Based Capital Requirements for Banks', SSRN Working Paper.
23. Although I do not retell the process of negotiating the Basle Accord here, my study largely relies on previous theories. For the background on the politics of the Basle Accord, which is particularly revealing in terms of the particular country preferences towards the Basle Accord, see Ethan Barnaby Kapstein, 'Resolving the Regulator's Dilemma: International Coordination of Banking Regulations', 43 Int'l Org 323 (1989); Ethan Barnaby Kapstein, 'Between Power and Purpose: Central Bankers and the Politics of Regulatory Convergence', 46 Int'l Org. 265 (1992); cf. Thomas Oatley and Robert Nabors, Redistributive 'Cooperation: Market Failure, Wealth Transfers, and the Basle Accord', 52 Int'l Org 35 (1998). For empirical analyses at the bank level on the impact of the Basle Accord, see John Douglas Wagster, 'Impact of the 1988 Basle Accord on International Banks', 51 J Fin 1321 (1996); G. J. de Bondt and H. M. Prast, 'Bank Capital Ratios in the 1990s: Cross-Country Evidence' (mimeo); and Patricia Jackson, 'Basle Committee on Banking Supervision, Capital Requirements and Bank Behavior: The Impact of the Basle Accord', Working Papers, No. 1 (April 1999) for a good review of the capital adequacy literature. For a legal analysis, see Klaus Peter Follak, 'International Harmonization of Regulatory and Supervisory Frameworks', in Mario Giovanoli (ed), International Monetary Law: Issues for the New Millennium 291 (2000); Heath Price Tarbert, 'Rethinking Capital Adequacy: The Basle Accord and the New Framework', 56 Bus L 767 (2001); and Duncan E. Alford, 'Basle Committee International Capital Adequacy Standards: Analysis and Implications for the Banking Industry', 10 Dick J Int'l L 189 (1992). For an institutionalist framework, see Beth A. Simmons, 'The International Politics of Harmonization: The Case of Capital Market Regulation' 55 Int'l Org 589 (2001). See also Robert E. Krainer, 'Banking in a Theory of the Business Cycle: A Model and Critique of the Basle Accord on Risk Based Capital Requirements for Banks', SSRN Working Paper.
24. Although I do not retell the process of negotiating the Basle Accord here, my study largely relies on previous theories. For the background on the politics of the Basle Accord, which is particularly revealing in terms of the particular country preferences towards the Basle Accord, see Ethan Barnaby Kapstein, 'Resolving the Regulator's Dilemma: International Coordination of Banking Regulations', 43 Int'l Org 323 (1989); Ethan Barnaby Kapstein, 'Between Power and Purpose: Central Bankers and the Politics of Regulatory Convergence', 46 Int'l Org. 265 (1992); cf. Thomas Oatley and Robert Nabors, Redistributive 'Cooperation: Market Failure, Wealth Transfers, and the Basle Accord', 52 Int'l Org 35 (1998). For empirical analyses at the bank level on the impact of the Basle Accord, see John Douglas Wagster, 'Impact of the 1988 Basle Accord on International Banks', 51 J Fin 1321 (1996); G. J. de Bondt and H. M. Prast, 'Bank Capital Ratios in the 1990s: Cross-Country Evidence' (mimeo); and Patricia Jackson, 'Basle Committee on Banking Supervision, Capital Requirements and Bank Behavior: The Impact of the Basle Accord', Working Papers, No. 1 (April 1999) for a good review of the capital adequacy literature. For a legal analysis, see Klaus Peter Follak, 'International Harmonization of Regulatory and Supervisory Frameworks', in Mario Giovanoli (ed), International Monetary Law: Issues for the New Millennium 291 (2000); Heath Price Tarbert, 'Rethinking Capital Adequacy: The Basle Accord and the New Framework', 56 Bus L 767 (2001); and Duncan E. Alford, 'Basle Committee International Capital Adequacy Standards: Analysis and Implications for the Banking Industry', 10 Dick J Int'l L 189 (1992). For an institutionalist framework, see Beth A. Simmons, 'The International Politics of Harmonization: The Case of Capital Market Regulation' 55 Int'l Org 589 (2001). See also Robert E. Krainer, 'Banking in a Theory of the Business Cycle: A Model and Critique of the Basle Accord on Risk Based Capital Requirements for Banks', SSRN Working Paper.
25. Although I do not retell the process of negotiating the Basle Accord here, my study largely relies on previous theories. For the background on the politics of the Basle Accord, which is particularly revealing in terms of the particular country preferences towards the Basle Accord, see Ethan Barnaby Kapstein, 'Resolving the Regulator's Dilemma: International Coordination of Banking Regulations', 43 Int'l Org 323 (1989); Ethan Barnaby Kapstein, 'Between Power and Purpose: Central Bankers and the Politics of Regulatory Convergence', 46 Int'l Org. 265 (1992); cf. Thomas Oatley and Robert Nabors, Redistributive 'Cooperation: Market Failure, Wealth Transfers, and the Basle Accord', 52 Int'l Org 35 (1998). For empirical analyses at the bank level on the impact of the Basle Accord, see John Douglas Wagster, 'Impact of the 1988 Basle Accord on International Banks', 51 J Fin 1321 (1996); G. J. de Bondt and H. M. Prast, 'Bank Capital Ratios in the 1990s: Cross-Country Evidence' (mimeo); and Patricia Jackson, 'Basle Committee on Banking Supervision, Capital Requirements and Bank Behavior: The Impact of the Basle Accord', Working Papers, No. 1 (April 1999) for a good review of the capital adequacy literature. For a legal analysis, see Klaus Peter Follak, 'International Harmonization of Regulatory and Supervisory Frameworks', in Mario Giovanoli (ed), International Monetary Law: Issues for the New Millennium 291 (2000); Heath Price Tarbert, 'Rethinking Capital Adequacy: The Basle Accord and the New Framework', 56 Bus L 767 (2001); and Duncan E. Alford, 'Basle Committee International Capital Adequacy Standards: Analysis and Implications for the Banking Industry', 10 Dick J Int'l L 189 (1992). For an institutionalist framework, see Beth A. Simmons, 'The International Politics of Harmonization: The Case of Capital Market Regulation' 55 Int'l Org 589 (2001). See also Robert E. Krainer, 'Banking in a Theory of the Business Cycle: A Model and Critique of the Basle Accord on Risk Based Capital Requirements for Banks', SSRN Working Paper.
26. Although I do not retell the process of negotiating the Basle Accord here, my study largely relies on previous theories. For the background on the politics of the Basle Accord, which is particularly revealing in terms of the particular country preferences towards the Basle Accord, see Ethan Barnaby Kapstein, 'Resolving the Regulator's Dilemma: International Coordination of Banking Regulations', 43 Int'l Org 323 (1989); Ethan Barnaby Kapstein, 'Between Power and Purpose: Central Bankers and the Politics of Regulatory Convergence', 46 Int'l Org. 265 (1992); cf. Thomas Oatley and Robert Nabors, Redistributive 'Cooperation: Market Failure, Wealth Transfers, and the Basle Accord', 52 Int'l Org 35 (1998). For empirical analyses at the bank level on the impact of the Basle Accord, see John Douglas Wagster, 'Impact of the 1988 Basle Accord on International Banks', 51 J Fin 1321 (1996); G. J. de Bondt and H. M. Prast, 'Bank Capital Ratios in the 1990s: Cross-Country Evidence' (mimeo); and Patricia Jackson, 'Basle Committee on Banking Supervision, Capital Requirements and Bank Behavior: The Impact of the Basle Accord', Working Papers, No. 1 (April 1999) for a good review of the capital adequacy literature. For a legal analysis, see Klaus Peter Follak, 'International Harmonization of Regulatory and Supervisory Frameworks', in Mario Giovanoli (ed), International Monetary Law: Issues for the New Millennium 291 (2000); Heath Price Tarbert, 'Rethinking Capital Adequacy: The Basle Accord and the New Framework', 56 Bus L 767 (2001); and Duncan E. Alford, 'Basle Committee International Capital Adequacy Standards: Analysis and Implications for the Banking Industry', 10 Dick J Int'l L 189 (1992). For an institutionalist framework, see Beth A. Simmons, 'The International Politics of Harmonization: The Case of Capital Market Regulation' 55 Int'l Org 589 (2001). See also Robert E. Krainer, 'Banking in a Theory of the Business Cycle: A Model and Critique of the Basle Accord on Risk Based Capital Requirements for Banks', SSRN Working Paper.
27. Bank capital (equity) is traditionally defined as assets (loans) minus liabilities (deposits). See Paul R. Krugman and Maurice Obstfeld, International Economics: Theory and Policy 659-67 (5th edn 2000). The Basle Accord goes further in dividing capital into two tiers. Tier 1, defined as paid-up share capital/common stock and published reserves from post-tax retained earnings, must comprise at least 5 per cent of a bank's capital base. Tier 2, defined as undisclosed reserves, asset revaluation reserves, general provisions/general loan-loss reserves; hybrid (debt/equity) capital instruments, and subordinated debt, is limited to 10 per cent of Tier 1 and combined with Tier 1 must comprise 8 per cent of the risk-weighted assets. See Basle Accord, above n 4, Annex 17. On-balance sheet assets are assigned to one of four risk buckets as part of the risk-weighting procedure, as I discuss below.
28. See Basle Accord, above n 4, § 1, at 1 nl.
29. See Jackson, above n 5. The Basle Accord has been amended five times since 1988, most importantly in 1996 to cover market risks. The BIS is currently in the process of drafting a new Basle Capital Accord that would incorporate Internal Risk Based Assessment under a three-pillar framework.
30. Oran Young, Compliance and Public Authority: A Theory with International Applications (1979).
31. There is significant dispute in the legal academy as to what forms of agreement should be considered international law. From a positivist perspective, any form of international law that exhibits an independent effect on state behaviour should be considered, which is why I adopt a broad conception here. This is similar to Slaughter's conception of international law as 'comprising] all the law that regulates activity across and between territorial boundaries'. Anne-Marie Slaughter, 'International Law in a World of Liberal States', 6 Eur J Int'l L 503 (1995). If empirical tests show that weaker forms of international law, such as soft law or customary international law, do not exhibit an independent effect on state behaviour, scholars will need to reconceptualize theories of compliance (as well as international law) accordingly. Soft law and customary law constitute a critical test for realist conceptions of international law and also represent crucial cases for a general theory of compliance. See Andrew T. Guzman, 'International Law: A Compliance Based Theory', 90 Cal L Rev (2002) (forthcoming) (proposing a theory of compliance based upon reputational harm that applies broadly to forms or international law and arguing that '[b]y allowing states to establish clear rules and pledge their reputation, treaties cause the behavior of states to change, which I term binding force'). But cf. Jack L. Goldsmith and Eric A. Posner, 'A Theory of Customary International Law', 66 U Chi L Rev 1113 (1999) (arguing that reputation does not play an independent role in customary international law outside of punishment strategies in repeated games). In the end, the definition of international law is by no means dispositive of the analysis presented.
32. There is significant dispute in the legal academy as to what forms of agreement should be considered international law. From a positivist perspective, any form of international law that exhibits an independent effect on state behaviour should be considered, which is why I adopt a broad conception here. This is similar to Slaughter's conception of international law as 'comprising] all the law that regulates activity across and between territorial boundaries'. Anne-Marie Slaughter, 'International Law in a World of Liberal States', 6 Eur J Int'l L 503 (1995). If empirical tests show that weaker forms of international law, such as soft law or customary international law, do not exhibit an independent effect on state behaviour, scholars will need to reconceptualize theories of compliance (as well as international law) accordingly. Soft law and customary law constitute a critical test for realist conceptions of international law and also represent crucial cases for a general theory of compliance. See Andrew T. Guzman, 'International Law: A Compliance Based Theory', 90 Cal L Rev (2002) (forthcoming) (proposing a theory of compliance based upon reputational harm that applies broadly to forms or international law and arguing that '[b]y allowing states to establish clear rules and pledge their reputation, treaties cause the behavior of states to change, which I term binding force'). But cf. Jack L. Goldsmith and Eric A. Posner, 'A Theory of Customary International Law', 66 U Chi L Rev 1113 (1999) (arguing that reputation does not play an independent role in customary international law outside of punishment strategies in repeated games). In the end, the definition of international law is by no means dispositive of the analysis presented.
33. There is significant dispute in the legal academy as to what forms of agreement should be considered international law. From a positivist perspective, any form of international law that exhibits an independent effect on state behaviour should be considered, which is why I adopt a broad conception here. This is similar to Slaughter's conception of international law as 'comprising] all the law that regulates activity across and between territorial boundaries'. Anne-Marie Slaughter, 'International Law in a World of Liberal States', 6 Eur J Int'l L 503 (1995). If empirical tests show that weaker forms of international law, such as soft law or customary international law, do not exhibit an independent effect on state behaviour, scholars will need to reconceptualize theories of compliance (as well as international law) accordingly. Soft law and customary law constitute a critical test for realist conceptions of international law and also represent crucial cases for a general theory of compliance. See Andrew T. Guzman, 'International Law: A Compliance Based Theory', 90 Cal L Rev (2002) (forthcoming) (proposing a theory of compliance based upon reputational harm that applies broadly to forms or international law and arguing that '[b]y allowing states to establish clear rules and pledge their reputation, treaties cause the behavior of states to change, which I term binding force'). But cf. Jack L. Goldsmith and Eric A. Posner, 'A Theory of Customary International Law', 66 U Chi L Rev 1113 (1999) (arguing that reputation does not play an independent role in customary international law outside of punishment strategies in repeated games). In the end, the definition of international law is by no means dispositive of the analysis presented.
34. On the effectiveness of the Basle Accord and a proposal to develop a more comprehensive international banking agreement, see Morris Goldstein, The Case for an International Banking Standard 21-32 (1997).
35. I am indebted to James Perry for sparking this discussion.
36. The 'enforcement school' views international cooperation as strictly limited by its depth. Incentives of unilateral defection rise with the depth of cooperation, and therefore the only method of ensuring compliance as the requirements of international law become more onerous is to increase enforcement. See George W. Downs et al. 'Is the Good News About Compliance Good News About Cooperation?', 50 Int'l Org 379, 384-87, 380 (1996) (noting that 'the high level of compliance and the marginality of enforcement result from the fact that most treaties require states to make only modest departures from what they would have done in the absence of an agreement').
37. Of course, sanctioning outside of the regulatory agreement is still possible.
38. Realists have paid little attention to the factors affecting compliance, merely asserting that compliance arises from the selection effect at the drafting stage. International law is therefore held out as epiphenomenal. However, first, it is not clear that the selection effect arises merely from power capacity issues internationally, as I explore here. Secondly, from a dynamic perspective, we can test whether the likelihood of compliance is affected more by power capacities (however defined) or institutionalist factors. In this short article I have the much less ambitious objective of answering merely the first question of why states opt in.
39. See Simmons, above n 3.
40. Theorists have pointed out that regardless of whether national capital requirements exist, banks may still maintain particular capital-assets ratios as a signalling device to attract investors and depositors in accordance with its appetite for risk and return.
41. For a good review of the theoretical literature, see João A.C. Santos, 'Bank Capital Regulation in Contemporary Banking Theory', BIS Working Papers No. 90 (2000). For a review of the empirical literature, see Jackson, above n 5.
42. For a good review of the theoretical literature, see João A.C. Santos, 'Bank Capital Regulation in Contemporary Banking Theory', BIS Working Papers No. 90 (2000). For a review of the empirical literature, see Jackson, above n 5.
43. Much of this section draws on insight from industry comments solicited for the new Basle Capital Accord. I am aware of the methodological problems of inferring bank preferences towards the original Basle Accord from industry comments for the new Basle Accord. While the new Basle Accord's provisions for the Internal Risk Based Approach is in many respects more complex, reviewing reactions of national supervisory authorities and subnational interest groups is still one of the best methods of highlighting the distributional concerns of CAR. in general, especially in light of the dearth of other available data. Moreover, the fact that (a) national supervisors first collected industry comments and subsequently submitted them to the Basle committee, (b) subnational firms submitted comments directly, and (c) international organizations submitted comments directly sheds tremendous light into the pressures on the formulation of international soft law.
44. See, e.g. Bondt and Prast, above n 5.
45. More formally, (C/RWA)' = C' - (RWA/A)' - A', where C = capital, RWA = risk-weighted assets, A = total assets and 'indicates a proportionate change. See Bondt and Prast, above n 5, at 3.
46. Banks with higher tastes for risk, for example, may shift to the riskier types of capital within each risk bucket. Such a task may entail greater costs for banks that have portfolios spread across more risk buckets as a proportion of their overall capital structure.
47. See, e.g. Chiuling Lu et al. 'Wealth Effects of the Basle Accord on Small Banks', 23 J Econ Fin 246 (1999).
48. See Basle Committee on Banking Supervision, Amendment to the Capital Accord to Incorporate Market Risk (January 1996).
49. National supervisors have recognized this concern, and attempted to provide a 'menu' of risk assessment geared towards different types of banks in the new Basle Accord.
50. See D. Jones, 'Emerging Problems with the Basel Accord: Regulatory Capital Arbitrage and Related Issues' 14 J Banking Fin 35 (2000).
51. See Bondt and Prast, above n 5 at 19-20 (positing that commercial banks in the US may have higher appetites for risk or face difficulties raising capital because of high returns demanded by shareholders).
52. This cleavage has been particularly prominent in discussions for the New Basle Capital Accord. See, e.g. 'Hong Kong Monetary Authority, Comments on the Second Consultative Package of the New Basel Capital Accord' (31 May 2001) (discussing the proposals for operational risk).
53. See also Alistair Milne, 'Minimum Capital Requirements and the Design of the New Basel Accord' (2001) (draft) (providing cost-benefit analysis of the new Basle Accord).
54. But see Juerg Blum and Martin Hellwig, 'The Macroeconomic Implications of Capital Adequacy Requirements for Banks', 39 Eur Econ Rev 739, 741 (1995).
55. These two perspectives roughly represent the Kapstein and Oatley and Nabors debate. See Kapstein, above n 5 (explaining the Basle Accord from a public goods perspective whereby leadership of the UK and US 'learned' from the 1982 debt crisis); Oatley and Nabors, above n 5 (arguing that international redistributive factors prevailed). My argument is in some sense an extension from this debate. I argue that we cannot explain individual national decisions to implement the Basle Accord without extending the distributional analysis to a domestic institutional level. I also ascertain the applicability of the learning hypothesis (that Congress learned after the debt crisis and responded to voters' demands to prevent irresponsible lending by US banks after the 1983 IMF bailout), and its applicability to other countries.
56. These two perspectives roughly represent the Kapstein and Oatley and Nabors debate. See Kapstein, above n 5 (explaining the Basle Accord from a public goods perspective whereby leadership of the UK and US 'learned' from the 1982 debt crisis); Oatley and Nabors, above n 5 (arguing that international redistributive factors prevailed). My argument is in some sense an extension from this debate. I argue that we cannot explain individual national decisions to implement the Basle Accord without extending the distributional analysis to a domestic institutional level. I also ascertain the applicability of the learning hypothesis (that Congress learned after the debt crisis and responded to voters' demands to prevent irresponsible lending by US banks after the 1983 IMF bailout), and its applicability to other countries.
57. These two perspectives roughly represent the Kapstein and Oatley and Nabors debate. See Kapstein, above n 5 (explaining the Basle Accord from a public goods perspective whereby leadership of the UK and US 'learned' from the 1982 debt crisis); Oatley and Nabors, above n 5 (arguing that international redistributive factors prevailed). My argument is in some sense an extension from this debate. I argue that we cannot explain individual national decisions to implement the Basle Accord without extending the distributional analysis to a domestic institutional level. I also ascertain the applicability of the learning hypothesis (that Congress learned after the debt crisis and responded to voters' demands to prevent irresponsible lending by US banks after the 1983 IMF bailout), and its applicability to other countries.
58. See subsection I.B above and 17-28.
59. See Guzman, above n 10; Simmons, above n 3. For the domestic analogue of reputational theories of norms and law from a game theoretic perspective, see Eric A. Posner, Law and Social Norms (2000).
60. See Guzman, above n 10; Simmons, above n 3. For the domestic analogue of reputational theories of norms and law from a game theoretic perspective, see Eric A. Posner, Law and Social Norms (2000).
61. See Guzman, above n 10; Simmons, above n 3. For the domestic analogue of reputational theories of norms and law from a game theoretic perspective, see Eric A. Posner, Law and Social Norms (2000).
62. See Jackson, above n 5, at 2. Granted, the tests in this study are by no means definitive proof of this framework, but only suggestive evidence.
63. See Robert Axelrod, The Evolution of Cooperation (1984).
64. See Allen B. Frankel, 'Issues in Financial Institution Capital in Emerging Market Economies', Federal Reserve Bank of New York 22 (1998).
65. See, e.g. Manuel Conthe, 'The World Bank, Letter to Basle Committee on Banking Supervision' (7 June 2001) (noting that the New Basle Capital Accord will be difficult to implement for developing countries).
66. See, e.g. Bank of Korea, Letter to Basle Committee on Banking Supervision (30 May 2001) (noting difference between financially weak banks of emerging markets making more difficult the raising of new capital).
67. Ideally, our indicator would measure only the banking sector's exposure so that we do not pick up the positive effect on insurance companies, who are likely to gain from implementation.
68. See Ann E. Misback, 'The Foreign Bank Supervision Enhancement Act of 1991', Fed Reserve Bulletin (1993).
69. Concerns of competitive equity, for example, were voiced by National Australia Bank in response to the New Basle Accord, since Australian banks would ostensibly be subject to greater supervisory rigour than other Asian banks. See 'National Australia Bank, Comment to Basle Committee on Banking Supervision' § 2.3 (7 June 2001).
70. See 'Report of an Independent Task Force Sponsored by the Council on Foreign Relations, Safe-guarding Prosperity in a Global Financial System: The Future of International Financial Architecture' 47 (1999) [hereafter Task Force Report].
71. On the other hand, higher savings may be indicative of deeper financial markets, which would make countries potentially less susceptible to banking crisis, but not necessarily systemic risk.
72. See also discussion below, I.E.4.
73. Frieden provides ample evidence from the debt crises that mobilized broad coalitions in opposition to the banking sector. See, e.g. Jeffry A. Frieden, Banking on the World: The Politics of American International Finance 172 (1988) (stating the debt burdens in lesser developed countries led to international bankers being 'blamed rather than courted').
74. See Gerard Caprio Jr and Daniela Klingebiel, 'Bank Insolvency: Bad Luck, Bad Policy, or Bad Banking?', Annual World Bank Conference on Development Economics (1996).
75. For a clearer statement of when producers dominate, see Frances McCall Rosenbluth, 'Financial Deregulation and Interest Intermediation', in Gary A. Hanson and Yasamori Sone (eds), Political Dynamics in Contemporary Japan (1993).
76. International Monetary Fund, International Capital Markets: Developments, Prospects, and Key Policy Issues 163 (2000).
77. Id. The degree to which this pattern of lending has actually held true in emerging markets is still subject to debate. I only present the mechanism as a plausible mechanism for which domestic distributional concerns regarding the Basle Accord could vary along foreign-bank ownership in the market.
78. See Task Force Report, above n 43, at 44 (finding that '[s]tate-owned banks almost invariably have worse loan-loss experience and lower profitability than their commercial counterparts').
79. In particular, I have had to settle with less than optimal indicators of bank exposure. The most comprehensive international banking statistics are provided primarily by signatory countries to the Basle Accord and countries that have already opted into the Basle Accord. Therefore the ideal statistics (e.g. loans to developing countries, announced international equity issues, etc.) cannot be included in this set, but we can test their correlation with the variables we use as proxies for international exposure of the banking system. See Bondt and Prast, above n 5, at 19 (noting that 'bank-specific factors are not the only significant determinants of the [risk-adjusted capital ratio]').
80. See Frankel, above n 37.
81. See, e.g. 'Bahrain Monetary Authority, Letter to the Basle Committee on Banking Supervision' (27 May 2001).
82. See Ross Levine, 'Law, Finance, and Economic Growth', World Bank (1997) (mimeo).
83. This brand of argument is related to the comparative literature on political determinants of economic reforms. See, e.g. Stephen Haggard and R. R. Kaufman (eds), The Political Economy of Democratic Transitions (1995) (providing evidence that insulated chief executives are better able to implement economic reforms); Stephen Haggard, Pathways from the Periphery (1990) (providing evidence that autocracies are better able to implement economic reforms).
84. This brand of argument is related to the comparative literature on political determinants of economic reforms. See, e.g. Stephen Haggard and R. R. Kaufman (eds), The Political Economy of Democratic Transitions (1995) (providing evidence that insulated chief executives are better able to implement economic reforms); Stephen Haggard, Pathways from the Periphery (1990) (providing evidence that autocracies are better able to implement economic reforms).
85. Of course, some have pointed to the separation of powers under a republican constitution as an asset towards compliance of international commitments. The political fragmentation I address here is less about separation of powers than about partisan divisions and numbers of veto players in the government. See Douglass North and Barry Weingast, 'Constitutions and Commitment: The Evolution of Institutions Governing Public Choice in Seventeenth-Century England' 49 J Econ Hist 803 (1989).
86. See Mark Levy et al. 'The Study of International Regimes', 1 Eur J Int'l Rel 267, 289 (1995).
87. See 'People's Bank of China, Letter to Chairman of the Basel Committee on Banking Supervision' 2-3 (30 May 2001).
88. Lisa L. Martin, Democratic Commitments: Legislatures and International Cooperation 166 (2000).
89. This is, of course, a caricature of the banking theory, which specifies much more precisely under what conditions depositors fail to monitor banks and the degree to which banks will not internalize the full cost of risks. See Santos, above n 18, at Section 3.1.2-3 and 4.2 for a succinct review.
90. Id, at 14-15.
91. This has become an increasing concern with the increasing complexity of the New Basle Capital Accord. See, e.g. 'Report of the Institute of International Finance Steering Committee on Regulatory Capital', at 8 (voicing 'serious concerns with the technical capacity of banking regulators to implement the new framework in a consistent manner'); People's Bank of China, above n 59 (noting that 'banks in emerging markets still have a long way to go in order to improve their overall risk management system and supervisors in these countries are also under serious resource constraints').
92. This has become an increasing concern with the increasing complexity of the New Basle Capital Accord. See, e.g. 'Report of the Institute of International Finance Steering Committee on Regulatory Capital', at 8 (voicing 'serious concerns with the technical capacity of banking regulators to implement the new framework in a consistent manner'); People's Bank of China, above n 59 (noting that 'banks in emerging markets still have a long way to go in order to improve their overall risk management system and supervisors in these countries are also under serious resource constraints').
93. See International Monetary Fund, above n 49, at 174-5.
94. See Task Force Report, above n 43, at 45.
95. See Stephen Knack and Philip Keefer, 'Institutions and Economic Performance: Cross-Country Tests Using Alternative Institutional Measures', 7 Econ Pol 207 (1994); Paolo Mauro, 'Corruption and Growth', 110 QJ Econ 681 (1995); and Daniel Berkowitz, 'Economic Development, Legality, and the Transplant Effect' (1999) (unpublished manuscript, on file with author).
96. See Stephen Knack and Philip Keefer, 'Institutions and Economic Performance: Cross-Country Tests Using Alternative Institutional Measures', 7 Econ Pol 207 (1994); Paolo Mauro, 'Corruption and Growth', 110 QJ Econ 681 (1995); and Daniel Berkowitz, 'Economic Development, Legality, and the Transplant Effect' (1999) (unpublished manuscript, on file with author).
97. See Stephen Knack and Philip Keefer, 'Institutions and Economic Performance: Cross-Country Tests Using Alternative Institutional Measures', 7 Econ Pol 207 (1994); Paolo Mauro, 'Corruption and Growth', 110 QJ Econ 681 (1995); and Daniel Berkowitz, 'Economic Development, Legality, and the Transplant Effect' (1999) (unpublished manuscript, on file with author).
98. See Rafael La Porta et al., 'Law and Finance', 106 J Pol Econ 1113 (1998); Rafael La Porta et al., 'Legal Determinants of External Finance', 52 J Fin 1131 (1997).
99. See Rafael La Porta et al., 'Law and Finance', 106 J Pol Econ 1113 (1998); Rafael La Porta et al., 'Legal Determinants of External Finance', 52 J Fin 1131 (1997).
100. See Douglass C. North and Barry R. Weingast, 'Constitutions and Commitment: The Evolution of Institutions Governing Public Choice in Seventeenth-Century England', XLIX J Econ Hist 803 (1989); and Wallace Mendelson, 'Law and the Development of Nations', 32 J Pol 223 (1970).
101. See Douglass C. North and Barry R. Weingast, 'Constitutions and Commitment: The Evolution of Institutions Governing Public Choice in Seventeenth-Century England', XLIX J Econ Hist 803 (1989); and Wallace Mendelson, 'Law and the Development of Nations', 32 J Pol 223 (1970).
102. See Brown Weiss and Jacobson (eds) above n 3; and Simmons, above n 3.
103. See Brown Weiss and Jacobson (eds) above n 3; and Simmons, above n 3.
104. See James E. Rauch and Peter B. Evans, 'Bureaucratic Structure and Economic Performance', 74 J Pub Econ 49 (2000).
105. See Daniel Kaufmann and Shang-Jin Wei, Does 'Grease Money' Speed Up the Wheels of Commerce?, NBER Working Paper No 7093 (1999).
106. See 'World Bank Development Report: The State in a Changing World' (1997). See below I.E.4 (describing national discretion under Basle Accord).
107. See Simmons, above n 1.
108. See Slaughter, above n 10. Of course, Slaughter does not explicitly theorize relations between liberal and illiberal states. For the analogue in the comparative literature on the effects of democratic institutions on economic reforms, see Jorge I. Domínguez, 'Free Politics and Free Markets', 9 J Dem 70 (1999).
109. See Slaughter, above n 10. Of course, Slaughter does not explicitly theorize relations between liberal and illiberal states. For the analogue in the comparative literature on the effects of democratic institutions on economic reforms, see Jorge I. Domínguez, 'Free Politics and Free Markets', 9 J Dem 70 (1999).
110. See Simmons, above n 1, at 83-5.
111. OECD countries, as defined in the Basle Accord, includes full members of the OECD, as well as countries which have concluded special lending arrangements with the IMF under the Fund's General Arrangements to Borrow. See Basle Accord, § 35. To maintain consistency, I use the same definition here. Paragraph 34 of the Basle Accord was amended in 1994 to define the OECD groups of countries as excluding any country that has renegotiated its sovereign debt within the last five years. See Basle Committee on Banking Supervision, Amendment to the Capital Accord of July 1988 (July 1994).
112. In that case, the claim is also assigned a zero per cent risk-weight. See Basle Accord, above n 4, at Annex 2.
113. Claims on banks incorporated outside the OECD with a residual maturity of over one year receive a 100 per cent risk-weight. See Basle Accord, above n 4, at Annex 2.
114. To this extent, Oatley is incorrect in stating that '[t]he accord . . . assign[ed] a zero risk weight to governments of nations in the Organization for Economic Cooperation and Development (OECD), a 20 per cent risk weight to OECD banks and non-OECD governments, a 50 per cent risk for mortgage lending, and a 100 per cent risk to all other loans'. Thomas Oatley, 'The Dilemmas of International Financial Regulation', 23 Reg 36 (2001) (suggesting that 'the 1988 Basel Accord . . . may be more harmful than helpful'). In fact, no claim on any non-OECD central government would be assigned a 20 per cent risk-weight, as I outline.
115. See People's Bank of China, above n 59.
116. See Basle Accord, §§ 33-34, for a description of how these two options were being weighed by the Committee.
117. A rational expectations critique to bilateral treaty bargaining would argue that countries are aware of these institutional constraints ex ante, and that therefore compliance is only a reflection of these expectations. But as argued previously, this critique may not apply entirely to cases where countries unilaterally opt in to regulatory agreements (or for cases where actors have private information for that matter). Parties to the Basle Accord cannot, theoretically, exclude totalitarian states from implementing its guidelines.
118. See Simmons, above n 3.
119. See Basle Accord, above n 4, §§ 3 and 6.
120. Id, at § 15.
121. Id, at § 27.
122. Id, at Annex 2.
123. Id, at § 51.
124. See Alford, above n 5, at 202.
125. Id, at 205.
126. James R. Earth et al., 'The Regulation and Supervision of Banks Around the World: A New Data-base', World Bank (2001).
127. Some may argue that because of the low noncompliance rate within the database, detailed case studies represent a more adequate choice of methodology. However, such case studies must still account for common factors between non-compliers and compilers. From an inferential and methodological perspective these two approaches are therefore similar. See Gary King et al., Designing Social Inquiry: Scientific Inference in Qualitative Research (1994). Moreover, not only are the propositions testable with quantitative data, but this analysis is open to be supplemented and verified with additional data on the dependent variable, as well as a dynamic analysis of implementation. For these reasons, a logit analysis is apt. Of course, as Botcheva and Martin argue, the dependent variable may ultimately be even better captured by measuring the degree of convergence or divergence. See Liliana Botcheva and Lisa L. Martin, 'Institutional Effects on State Behavior: Convergence and Divergence' (2001) (manuscript).
128. Some may argue that because of the low noncompliance rate within the database, detailed case studies represent a more adequate choice of methodology. However, such case studies must still account for common factors between non-compliers and compilers. From an inferential and methodological perspective these two approaches are therefore similar. See Gary King et al., Designing Social Inquiry: Scientific Inference in Qualitative Research (1994). Moreover, not only are the propositions testable with quantitative data, but this analysis is open to be supplemented and verified with additional data on the dependent variable, as well as a dynamic analysis of implementation. For these reasons, a logit analysis is apt. Of course, as Botcheva and Martin argue, the dependent variable may ultimately be even better captured by measuring the degree of convergence or divergence. See Liliana Botcheva and Lisa L. Martin, 'Institutional Effects on State Behavior: Convergence and Divergence' (2001) (manuscript).
129. Ratification is hereby different from compliance per se as well as regime effectiveness. See Oran Young, 'The Effectiveness of International Institutions: Hard Cases and Critical Variables', in James N. Rosenau and Emst-Otto Czempiel (eds), Governance Without Government: Order and Change in World Politics 160 (1992).
130. Ghana (1982-9) and Kenya (1985-9, 1992, 1993-5). South Africa, a survey respondent, also experienced bank insolvency much earlier in 1977.
131. Benin (1988-90), Burkina Faso (late 1980s), Cameroon (1987-96), Central African Republic (1980s and 1994), Chad (1980s and 1990s), Congo (1980s and 1991), Côte d'Ivoire (1988-91), Eritrea (1993), Guinea (1993-4), Madagascar (1988), Mauritania (1983-93), Mozambique (1987-96), Nigeria (1990s), Senegal (1988-91), Tanzania (1995), Togo (1993-6), Uganda (1994), Zaire (1991-2), Zambia (1995). See Caprio and Klingebiel, above n 47, at 7.
132. Although Earth, Caprio and Levine describe their surveying procedure, it is unclear to what degree the selection effect is a result of the investigators or non-responses from countries that were actually solicited. In this paper, I will refer to countries that are not included in the survey for either reason as non-respondent countries, despite the fact that they may have never been originally solicited for information.
133. Note that this type of out of sample forecast relies on the fact that (a) non-response to the survey is negatively correlated with implementation, and (b) explanatory variables negatively affect both response and implementation.
134. Alternative results available from author.
135. I hereby adhere to the guidelines set forth in Gary Knight et al. 'Making the Most of Statistical Analysis: Improving Interpretation and Presentation', 44 Am J Pol Sci 347 (2000), using Clarify to estimate parameters with a number of draws (m = 1000). I also use Spost to generate graphs. See J. S. Long and J. Freese, Regression Models for Categorical Dependent Variables using Stata (2001). Since the substantive effects were calculated using Clarify, they are subject to change with new draws.
136. I hereby adhere to the guidelines set forth in Gary Knight et al. 'Making the Most of Statistical Analysis: Improving Interpretation and Presentation', 44 Am J Pol Sci 347 (2000), using Clarify to estimate parameters with a number of draws (m = 1000). I also use Spost to generate graphs. See J. S. Long and J. Freese, Regression Models for Categorical Dependent Variables using Stata (2001). Since the substantive effects were calculated using Clarify, they are subject to change with new draws.
137. By appropriate I simply mean that if the effect is largest for the bottom of the sample and virtually undetectable at the upper range, given a particular explanatory variable, I interpret the variable where it has a substantively interesting effect. For example, it would be relatively uninteresting to interpret GDP per capita at its mean or median, where the compliance rate amongst countries is extremely high throughout.
138. This is of course not to say that such an exogenous increase is feasible, but merely to illustrate the effect.
139. I also reanalyzed all of the models presented in Tables 4 and 5, excluding CRNTXFER, with no changes in substantive results.
140. Bahrain, Bhutan: Burundi: China, Egypt, Ghana, Indonesia, Jordan, Kenya, Kuwait, Malawi, Oman, Rwanda, Saudi Arabia, Tajikistan, and Vietnam.
141. See Simmons, above n 3 (finding no support for the proposition that democratic regimes commit to openness with the same explanatory variable).
142. Jacobson and Brown Weiss find that democracies allow NGOs to operate, which thereby influences compliance.
143. This is confirmed also by a missing values analysis.
144. This is in line with Goldstein's conclusion that 'most banking crises are not followed by significant banking reform' [emphasis in original]. See Goldstein, above n 11 at 27.
145. But see Barth et al., above n 91, at 33 (finding no robust link between capital regulations and banking crises when controlling for other characteristics of the regulatory and supervisory environment).
146. It is for this reason that banking crises of the Asian crises are not included in the sample.
147. This is the concern that Australia raised for its competitiveness in East Asia.
148. Interestingly, when foreign ownership as added, the model fully explained all variation in implementation. However, two crucial observations were dropped from the sample, precisely those observations which Models 6 and 7 were unable to explain.
149. This contradicts the findings on Simmon's study. See Simmons, above n 3 (finding substantial adherence to the regional norm).
150. Several alternative specifications were tested, using the dummy variable by itself and subsequently interacting DEPOSIT with other variables. None of the results improved our overall model. Results available from author.
151. For the most simple model, CAPTURE = POLCON * CONCEN.
152. Several different specifications using various measurements for a strong state were used, none of which provided any substantively different results. Ancillary tables available from author at request.
153. Abram Chayes and Antonia Handler Chayes, 'The New Sovereignty: Compliance with International Regulatory Agreements' 15 (1995).
154. Id, at 15 (noting a 'considerable time lag after the treaty is concluded before some or all of the parties can bring themselves into compliance').
155. I am grateful to Jeff Frieden for making this point.
156. Of course, consciously choosing variables to drop cases that are positive on the dependent variable would result in another bias, and all efforts were exerted to avoid this. As already stated, most of this problem can be remedied by merely collecting more data about the dependent variable.
157. See Task Force Report, above n 43, at 47.
158. Although the report referred to 'international agreements for regulatory capital' in general, reference to the risk-weighting presumably refers only to the Basle Accord. See Task Force Report, above n 43 at 45.
159. I used those regulations applying to domestic banks (e.g. Aruba), those applying after two years of establishment (e.g. Belarus, Poland), and those applying to year 1999 (e.g. Canada, Lebanon). There were some other difficulties accurately scoring all the countries in the survey. Gibraltar, for example, did not specify which ratios applied to which institutions.
160. World Development Indicators, World Bank, World Development Indicators CD (2001).
161. Some uncertainty remained in the coding, since Caprio and Klingebiel provide only uncertain dates for some countries (e.g. Morocco, Kuwait).
162. For further information on the construction of this index, see Witold J. Henisz, 'The Institutional Environment for Economic Growth', 12 Econ Pol 1 (2000).
163. See also Keith Jaggers and Ted R. Gurr, Polity III: Regime Change and Political Authority, 1800-1994, Inter-University Consortium for Political and Social Research (1996); Keith Jaggers and Ted R. Gurr, 'Tracking Democracy's Third Wave with the Polity III Data', 32 J Peace Research 469 (1995).
164. See also Keith Jaggers and Ted R. Gurr, Polity III: Regime Change and Political Authority, 1800-1994, Inter-University Consortium for Political and Social Research (1996); Keith Jaggers and Ted R. Gurr, 'Tracking Democracy's Third Wave with the Polity III Data', 32 J Peace Research 469 (1995).
165. See Knack and Keefer, above n 66.
166. See La Porta et al., above n 67.