Restraining regulatory capture? Anglo-America, crisis politics and trajectories of change in global financial governance

International Affairs

Volumn 86, Issue 3, 2010, Pages 647-663

  Baker, Andrew ^a  

^a QUEEN S UNIVERSITY   (Canada)

Author keywords

[No Author keywords available]

Indexed keywords

EID: 77954097755     PISSN: 00205850     EISSN: 14682346     Source Type: Journal    
DOI: 10.1111/j.1468-2346.2010.00903.x     Document Type: Article

References (48)

1. See Andrew Cooper's article in this issue.
2. Simon Johnson, 'The quiet coup', The Atlantic, http://www.theatlantic.com/doc/print/200905/imf-advice, accessed 9 Dec. 2009; Simon Johnson and James Kwak, 13 bankers: the Wall Street take over and the next financial meltdown (New York: Pantheon, 2010); Willem Buiter, 'Lessons from the global financial crisis for regulators and supervisors', paper presented at 'The global financial crisis: lessons and outlook', 25th anniversary workshop of the Advanced Studies Program of the Institut für Weltwirtschaft, Kiel, 8-9 May 2009; Avinash Persaud, 'Boomtime politicians will not rein in the bankers', Financial Times, 26 Nov. 2009.
3. Jagdish Bhagwati, 'The capital myth: the difference between trade in widgets and trade in dollars', Foreign Affairs 77: 3, 1998, pp. 7-12; Robert Wade and Frank Veneroso, 'The Asian crisis: the high debt model versus the Wall Street-Treasury complex', New Left Review, no. 228, March/April 1998, pp. 3-23.
4. For the original statement that regulatory capture moves through a life-cycle, see Marver Bernstein, Regulating business by independent commission (Princeton, NJ: Princeton University Press, 1955).
5. Johnson and Kwak, 13 bankers; The Warwick Commission on International Financial Reform, In praise of unlevel playing fields (Coventry: University of Warwick, Dec. 2009).
6. The most high-profile champion of this view was former Federal Reserve chairman Alan Greenspan.
7. The Warwick Commission on International Financial Reform, chaired by Avinash Persaud, makes the argument that this focus on internal risk management computer models placed an emphasis on IT capacity rather than risk capacity, resulting in an approach that was process-oriented rather than results-oriented.
8. Avinash Persaud, 'Sending the herd off the cliff edge: the disturbing interaction between herding and market-sensitive risk management systems', World Economic Strategy 1: 4, 2000, pp. 15-26.
9. Persaud 'Boomtime politicians will not rein in the bankers'.
10. Important as such an observation is in explaining what caused the financial crisis of 2007-2009, it still struggles to explain the precise timing and scope of the financial crisis, because of the sheer complexity of the conjuncture of circumstances leading up to the crisis. I am grateful to Chatib Basri for this observation. Global imbalances have also been cited as a cause of the crisis (see Paolo Guerrieri's article in this issue), as have excessively loose monetary policy and lending policies in the US mortgage sector.
11. These measures also increased industry concentration, increasing worries about institutions that are 'too big to fail' and moral hazard issues.
12. Robert Cox, 'Social forces, states and world orders: beyond international relations theory', Millennium: A Journal of International Studies 10: 2, 1981, pp. 126-55.
13. Johnson, 'The quiet coup'.
14. Eleni Tsingou, 'Transnational private governance and the Basel Process: banking regulation and supervision, private interests and Basel II', in Jean Christophe Graz and Andreas Nolke, eds, Transnational private governance and its limits (London: Routledge, 2008), pp. 58-68.
15. Duncan Wood, Governing global banking: the Basel Committee and the politics of financial regulation (Aldershot: Ashgate, 2005).
16. George Stigler, 'The economic theory of regulation', Bell Journal of Economics 2: 1, 1971, pp. 3-21.
17. Sam Peltzman, 'George Stigler's contribution to the economic analysis of regulation', Journal of Political Economy 101: 5, 1993, pp. 818-32. The evidence from this crisis would suggest that the answer does not lie in deregulation in the banking sector, largely because of the negative externalities generated by the crisis for all sectors of the economy, including taxpayers, and the social utility of all regulation should not consequently be questioned simply on efficiency grounds as the Chicago School has asserted.
18. Johnson and Kwak, 13 bankers.
19. Deniz Igan, Pragan Mishra and Thierry Tressel, 'A fistful of dollars: lobbying and the financial crisis', working paper 09/287 (Washington DC: IMF, Dec. 2009).
20. Daniel Kaufman, 'Corruption and the global financial crisis', http://www.forbes.com/2009/01/27/corruption-financial-crisis-business-corruption09, accessed 26 Jan. 2010.
21. Ben Thirkell-White, 'Dealing with the banks: populism and the public interest in the global financial crisis', International Affairs 85: 4, 2009, pp. 689-711.
22. Toni Makkai and John Braithwaite, 'In and out of the revolving door: making sense of regulatory capture', Journal of Public Policy 12: 1, 1992, pp. 61-78.
23. Robert Rubin, Henry Paulson and William C. Dudley are among the better-known individuals making that journey, while Gerald Corrigan left the New York Federal Reserve and became CEO of Goldmans.
24. Johnson, 'A very quiet coup'.
25. Andrea Prat, 'A political economy view of financial regulation', Vox Commentary, 9 March 2009, http://www.voxeu.org/index.php?q=node/3213, accessed 26 Jan. 2010.
26. Leonard Seabrooke and Eleni Tsingou, 'Revolving doors and linked ecologies in the world economy: policy locations and the practice of international financial reform', Centre for the Study of Globalisation and Regionalisation working paper 260/2009, University of Warwick http://www2.warwick.ac.uk/fac/soc/csgr/research/workingpapers/2009/26009.pdf, accessed 25 Sept. 2009.
27. Andrew Baker, 'Deliberative equality and the transgovernmental politics of the global financial architecture', Global Governance 15: 2, 2009, pp. 195-218.
28. Jo Becker and Gretchen Morgenson, 'Geithner, member and overseer of finance club', New York Times, 27 April 2009.
29. Warwick Commission on International Financial Reform, In praise of unlevel playing fields, p. 28.
30. Andrew Baker, The Group of Seven: finance ministries, central banks and global financial governance (London: Routledge, 2006).
31. The generous terms of the Toxic Asset Relief Programme can be cited as further evidence of regulatory capture.
32. Confidential remarks made by official to the author under Chatham House rules.
33. Simon Johnson, 'Goldman Sachs and the Republicans', The Baseline Scenario, http://baselinescenario.com/2010/02/05/goldman-sachs-and-the-republicans-2/, accessed 20 Feb. 2010.
34. Leonard Seabrooke, 'Responsible credit and welfare', commentary in Warwick Commission on International Financial Reform, In praise of unlevel playing fields, pp. 29-30.
35. Nick Mathiason and Jill Treanor, 'Gordon Brown in secret push to sell Tobin tax to City', Guardian, 9 Nov. 2009.
36. Eric Helleiner and Stefano Pagliari, 'The end of self regulation? Hedge funds and derivatives in global financial governance', in Eric Helleiner, Stefano Pagliari and Hubert Zimmerman, eds, Global finance in crisis: the politics of international regulatory reform (London: Routledge, 2010).
37. Tony Porter, 'Technical collaboration and political conflict in the emerging regime for international financial regulation', Review of International Political Economy 10: 3, 2003, pp. 520-51.
38. Interviews conducted by Brendan Carey, PhD student in the School of Politics, International Studies and Philosophy, Queen's University of Belfast, with a range of emerging market finance ministry and central bank officials during 2009.
39. Andrew Walter, Governing finance: East Asia's adoption of international standards (Ithaca, NY: Cornell University Press, 2008).
40. Swati Chaudhury and Leonard Seabrooke, 'Pragmatic numbers: how the IMF creates policy dialogue for financial reform', CSGR working paper 261/09, University of Warwick, 2009 http://www2.warwick.ac.uk/fac/soc/csgr/research/workingpapers/2009/26109.pdf, accessed 10 Oct. 2009.
41. Howard Davies and David Green, Global financial regulation: the essential guide (Cambridge: Polity Press, 2008).
42. Financial Stability Board, 'Progress since the Pittsburgh summit in implementing the G20 recommendations for strengthening financial stability', report of the Financial Stability Board to G20 finance ministers and governors, 7 Nov. 2009.
43. The justification for this would be the widespread negative externalities generated by financial crises.
44. Claudio Borio, 'Implementing the macroprudential approach to supervision and regulation', Banque de France, Financial Stability Review, no. 13, Sept. 2009, pp. 31-41.
45. Persaud, 'Sending the herd off the cliff edge'.
46. FSB, 'Progress since the Pittsburgh summit'.
47. For a recognition of this, see Avinash Persaud, 'The counter revolution begins: the rise and premature fall of macro-prudential regulation', 16 July 2009, http://blogs.warwick.ac.uk/warwickcommission/entry/the_counter-revolution_begins/, accessed 10 Aug. 2010.
48. For a worst-case scenario, see Peter Boone and Simon Johnson, 'Risk taking, regulatory capture and bailouts: the doomsday cycle', http://www.voxeu.org/index.php?q=node/4659, accessed 15 March 2010.