1st Edition
Global Financial Networked Governance The Power of the Financial Stability Board and its Limits
Global Financial Networked Governance provides a careful analysis of the Financial Stability Board (FSB) and the standard-setters under its umbrella to show how such government networks harness the power of public reputation to herd their members into compliance.
The FSB’s track record in coordinating global financial regulatory reform is uneven. Some items on its agenda have seen the rapid evolution of globally coordinated regulatory standards and their implementation by all member states, sometimes even ahead of the stipulated timelines. In contrast, other initiatives have stalled at different stages of the policymaking process, global coordination is lacking, deadlines have been missed, and it is currently unclear when the post-crisis financial reform project will come to completion, if ever. In this book, the author asks the question: why has the FSB succeeded in some areas of its global financial regulatory coordination work and not in others? The book traces the global policymaking process in three major issue areas: banking regulation (Basel III), over-the-counter (OTC) derivatives, and ending too-big-to-fail. Through a combination of careful process tracing and rigorous testing against alternative explanations, it challenges the existing literature by revealing that the institutional pathway of policymaking is the main predictor of FSB progress. It shows that government networks on their own have succeeded in implementing globally coherent safety standards. In contrast, legislation and legislators in key G20 countries have limited the power and effectiveness of the FSB. The author analyzes the causes and effects of this phenomenon and suggests a novel institutional solution to the effectiveness-legitimacy dilemma that global governance forums face, combining the advantages of functional specialization and electoral accountability.
This book will be of great interest to graduate students; academics working at the intersection of economics, political science, and international law; students of the FSB in particular; and policymakers in global economic governance.
1. The Financial Stability Board – A Mixed Track Record at the Center of Global Financial Governance
2. The Power of a Government Network – and its Limits
3. Timely Implementation and Mock Compliance with Basel III
4. OTC Derivatives
5. The Never-Ending Too-Big-To-Fail Story
6. Effectiveness and Legitimacy of Government Networks
Biography
Peter Knaack is an Adjunct Professorial Lecturer at the School of International Service at American University, in Washington, DC, USA. He also serves as a senior research fellow at the Global Economic Governance Programme at the University of Oxford, UK; as a research associate at the Centre for Sustainable Finance at SOAS University of London, UK; and an associate at the Council on Economic Policies, a Swiss think tank. His research focuses on global financial governance. He has written and published on the political economy of global financial standard-setting, digital financial inclusion, green finance, and China’s financial system.
“Peter Knaack’s extremely interesting Global Financial Networked Governance provides an in-depth analysis of the Financial Stability Board as it relates to government networks in the aftermath of the global financial crisis. In doing so, Knaack discusses the uneven implementation record of the FSB with respect to three reform areas: prudential banking (Basel III), OTC derivatives, and ending Too-Big-To-Fail. Basel was a success, and Knaack uses the example to underscore his main point. Policies effectuated by government networks of regulators, in his view, are generally implemented consistently and quickly, whereas policies that are subjected to involvement by legislators tend to experience delays and cross-border inconsistencies. He notes that the place where Basel was implemented slowly was the place where the EU parliament got involved. Derivatives regulation and TBTF exhibit similar characteristics – where regulation alone is sufficient, regulatory cooperation works; where legislatures must be involved, regulatory cooperation can founder. The thesis is very plausible – we see similar dynamics in international trade rule compliance. And the discussions of the regulatory issue areas erudite and informed. I really enjoyed the book, and welcomed its contribution to the larger subject of international regulatory cooperation, and how it can prosper.”
David Zaring, Elizabeth F. Putzel Professor of Legal Studies & Business Ethics at Wharton, University of Pennsylvania, USA
“An original, important and timely contribution to our understanding of the politics of international standard setting in finance, the (at times, problematic) domestic implementation of the standards set, as well as the cooperation (or, in some instances, the lack thereof) among the main financial jurisdictions in the pursuit of financial stability. The novel theoretical perspective of the book, which examines the institutional pathways of policy-making, and its rich empirical analysis, which delves into various activities of the Financial Stability Board and related international standard-setting bodies, make this work a ‘must’ for those interested in the governance of global finance and, more broadly, global economic governance.”
Lucia Quaglia, Professor of Political Science, University of Bologna, Italy
“In Global Financial Networked Governance, Peter Knaack provides a detailed analysis of the Financial Stability Board (FSB) and its work in three critical areas: the Basel III accord on capital, liquidity and leverage requirements; reforms of the over-the-counter derivatives market; and efforts to put an end to the fact that some banks are perceived to be too big to fail. Based on numerous interviews with key participants in the FSB’s activity over the 2010s, Knaack sheds unprecedented light on this important component of the global financial regulatory architecture, and provides unique reference material for future students of non-binding yet consequential rulemaking at the international level.”
Nicolas Véron, Senior Fellow, Bruegel, Belgium; and the Peterson Institute for International Economics, USA
“This book takes a multidisciplinary approach to explaining why the Financial Stability Board (FSB), as a representative example of global networks as opposed to intergovernmental organizations, has a mixed record in achieving global financial regulatory coordination. Drawing on firsthand interviews with stakeholders, the author provides a novel explanation that the legislative reluctance to empower the FSB has resulted in difficulty in compliance with globally coordinated regulatory standards. It takes a step further to raise a fundamental question about the legitimacy of implementing uniform global financial regulatory standards across the board. In addition to procedural legitimacy, it would be useful if the author can examine whether it is desirable to adopt a global standard financial regulatory framework given divergent financial structures for countries (such as small and local banks in developing countries versus large and internationally active banks in developed countries) at different stages of development in the future research. The book makes a great contribution to a better understanding of global financial governance.
Jiajun Xu, Executive Deputy Dean, Institute of New Structural Economics at Peking University, China
“This scholarly and highly readable work deftly blends regulatory, financial and political insights. It is a model of the interdisciplinary research needed to confront real-world problems. Moreover, it addresses a question of fundamental importance. How do you effectively implement global policies when power rests in the hands of self-interested nation states? Knaack carefully examines the successes and failures of various, global projects initiated by the Financial Stability Board. He finds therein a model, the international ‘governance network’, that might be applied to other pressing global problems like climate change and the regulation of Artificial Intelligence. This book should be of immense interest to anyone interested in actually making change happen at the global level.”
William White, Senior Fellow, C.D. Howe Institute, Canada, and Former Economic Adviser and Head of the Monetary and Economic Department, Bank of International Settlements (BIS)
“In the wake of the global financial crisis there was a clarion call for better international regulation, yet the record is mixed. Why? In this carefully researched book, Knaack shows that when international technocratic networks could work unencumbered, reforms were more likely to succeed. But national legislatures were (rightly) wary of ceding power to unelected supranational bodies, often acting to stymie reform efforts. This book pinpoints a dilemma at the heart of global financial regulation: transnational networks of technocrats are effective at delivering international cooperation but are unaccountable, while national legislatures are accountable but ineffective, as they are not set up to cooperate across borders. Reconciling the tension between effectiveness and accountability is a vital challenge that international institutions like the financial stability board need to address. This book provides important and thought-provoking insights for scholars and policymakers alike.”
Emily Jones, Associate Professor of Public Policy at the Blavatnik School of Government, University of Oxford, UK, and Director of the University's Global Economic Governance Programme
