Crisis and Punishment? Explaining Politicians’ Appetite for Retribution in Post-Crisis Europe

This paper investigates the politics of holding bank executives accountable for banking crises. The aftermath of the 2008 global financial crisis was characterized by a significant variation in the extent to which European countries endorsed this type of retributive justice. In particular, while some countries established special prosecutorial bodies and took steps to facilitate prosecutions, others seemed to consider the crisis “business as usual” and relied on the existing investigative and prosecutorial mechanisms to seek out wrongdoing. We explore the experiences of two European countries, Iceland and Cyprus. We argue that the way a financial crisis unfolds plays a significant role in shaping the appetite of politicians for promoting an agenda of retributive justice. With a banking collapse, politicians will be most proactive, as voters’ demand for justice is high and the risks for the banking industry are minimal. With a severe yet negotiated crisis following a bailout/bail-in, politicians are more reluctant to endorse policies that may risk the recovery of the fragile

Beyond financial repression and regulatory capture. The recomposition of European financial ecosystems after the crisis

The financial crisis has radically and rapidly changed the political economy of the European financial system. The evolution of relations between European states and their respective financial systems has given rise to two competing narratives. On the one hand, government agencies are often described as being at the mercy of the financial sector, regularly highjacking political, regulatory and supervisory processes. This trend is often referred to as "regulatory capture" and would explain the "soft touch" regulation and bank bailout. On the other hand, governments are portrayed as subverting markets and abusing the financial system for their benefit, mainly to obtain better financing conditions and allocate credit to the economy on preferential terms, a trend called "financial repression" that is considered corrosive to the proper functioning of free markets and a source of capital misallocation. This paper takes a critical look at this debate in the European context. First, he argues that the relationship between governments and financial systems in Europe cannot be reduced to the polar notions of "capture" and "repression", but that the channels of pressure and influence between governments and their financial systems have often been two-way. Secondly, it puts these issues in a historical perspective and shows that the current reconfiguration of national financial systems in Europe is not simply a return to the "interventionist" policies of the past, although it is influenced by the path-dependency of national institutions and characterised by a broader political and economic role for public bodies (public credit institutions, financial supervision agencies, central bank, European relief fund, etc.)

Governing Financial Stability: the Financial Stability Board as the Emerging Pillar in Global Economic Governance

The Financial Stability Board represents the most important institutional innovation in the global economic governance architecture that has emerged from response the global financial crisis originated in the summer of 2007 from the US subprime mortgage markets. This institution was created by the G20 at the height of the global financial crisis with the task of urgently coordinating the international regulatory response to the crisis. However, rather than being a short-term fix in response to the crisis, the FSB has been given a central role in promoting international financial stability. In the words of the U.S. Treasury Secretary Timothy Geithner, the FSB should have become a ‘Fourth Pillar’ in global economic governance along with the IMF, the WB and the WTO (US Treasury 2009). However, this label overlooks the fact that the commonalities between the FSB and the other three pillars are far fewer that the elements that set these institutions apart. The FSB can rely in the pursuit of its mandate neither the large staff and financial resources of the IMF and World Bank, nor on the legal standing and the power to devise legally enforceable agreements of the WTO. Instead, the FSB’s mandate, internal structure,and membership make this a rather unique institution in the global economic governance architecture. How can we explain the unique nature of the FSB and the differences with other institutions that populate the existing global economic governance architecture? Whose preferences and paradigms are reflected in the evolution of the mandate, internal governance, and membership of the institution? And what kind of power is the FSB capable to exercise over the different players that populate the governance of international financial markets? These are the questions that will be analyzed in this chapter. The first section will provide a historical overview of the FSB starting from the emerging market crises of the late 1990s to the first significant revision of its Charter in 2012. The second section will explore the expansion in the tasks performed by the FSB over this period. This analysis will illustrate an evolution in the role of the FSB from being primarily a coordination mechanism to an institution capable to exercise a greater independent impact over the global economic governance. The third part will different measures introduced since the beginning of the crisis to strengthen the institutional bases of the FSB in support of the growing set of tasks. Finally, the fourth part will analyze the membership of the FSB. This section will discuss how the FSB has evolved from a narrow club to a more inclusive organisation, and how it interacts with those non-member countries

Capital United? Business Unity in Regulatory Politics and the Special Place of Finance

While organized business is a key actor in regulatory politics, its influence is often conditional on the level of unity or conflict occurring within the business community at any given time. Most contemporary regulatory policy interventions put pressure on normal mechanisms of business unity, since they are highly targeted and sector-specific. This raises the question of how business unity operates across a highly variegated economic terrain in which costs are asymmetric and free-riding incentives are high. In the paper we empirically assess patterns of business unity within regulatory policymaking across different regulated sectors. Our analysis utilizes data from hundreds of regulatory policy proposals, and business community reactions to them in the telecommunications, energy, agriculture, pharmaceutical and financial sectors over a variety of institutional contexts. We find considerable empirical support for the ‘finance capital unity’ hypothesis – the notion that the financial sector enjoys more business unity than do other regulated sectors of the economy. When the financial sector is faced with new regulations, business groups from other sectors frequently come to its aid

The End of Self-Regulation? Hedge Funds and Derivatives in Global Financial Governance

This volume examines the changes in international financial regulation from the vantage point of the key powers in global finance including the US, the EU, Japan, and China