International Harmonization of Financial Regulation?
The Politics of Global Diffusion of the Basel Capital Accord
It is often argued that international financial regulation has been substantially strengthened over the past decades through the international harmonization of financial regulation. There are, however, still frequent outbreaks of painful financial crises, including the recent 2008 global financial crisis. This raises doubts about the conventional claims of the strengthening of international financial regulation.
This book provides an in-depth political economy study of the adoptions in Japan, Korea and Taiwan of the 1988 Basel Capital Accord, the now so-called Basel I, which has been at the center of international banking regulation over the past three decades, highlighting the domestic politics surrounding it. The book illustrates that, despite banks’ formal compliance with the Accord in these countries, their compliance was often cosmetic due to extensive regulatory forbearance that allowed their real capital soundness to weaken. Domestic politics thus ultimately determined national implementations of the Accord. This book provides its novel innovative study of the Accord through scores of interviews with bank regulators and analysis of various primary documents. It suggests that the actual effectiveness of international financial regulation relies ultimately on the domestic politics surrounding it. It implies as well that the past trend of international harmonization of financial regulation may be illusory, to at least some extent, in terms of its actual effectiveness.
This book may interest not only political economists but also scholars working on the intersection of law, economics and institutions.
Table of Contents
1. Introduction: International Harmonization and Domestic Politics in Passive Adopters Part I: Harmonization 2. Creation of the 1988 Basel Accord 3. Non-Committee Members prior to the Accord 4. External Pressures for Accord Compliance Part II: Compliance 5. Japan: Persistent Cosmetic Compliance 6. South Korea: A Shift from Cosmetic to More Effective Compliance 7. Taiwan: Weakening Effective Compliance 8. Conclusion
Hyoung-kyu Chey is Associate Professor of International Political Economy at National Graduate Institute for Policy Studies (GRIPS), Tokyo, Japan.
"We know much more about the negotiation of international financial standards than we do about their implementation. Chey's excellent new book helps to address this important gap in scholarly knowledge through a careful study of the politics of implementing the most famous standard of all: the 1988 Basel Capital Accord. His thorough research suggests that international regulatory harmonization is easily exaggerated and it highlights the enduring primacy of domestic politics even in this most globalized sector of the economy."— Eric Helleiner, Professor, Faculty of Arts Chair in International Political Economy, Department of Political Science and Balsillie School of International Affairs, University of Waterloo
"There are very few detailed studies of how financial regulatory standards diffuse from the major centres of policy innovation to the rest of the world. Hyoung-kyu Chey’s contribution to our understanding of this process is considerable: in a detailed account of how Japan, Korea and Taiwan implemented Basel capital standards he shows how domestic politics and institutions reshaped and adapted these standards to fit local circumstances, often in ways at odds with the Basel Committee’s intent. This is a timely study of direct relevance to the current challenges of implementing Basel III and of reforming global economic governance more generally." — Andrew Walter, Professor of International Relations of School of Social and Political Sciences, University of Melbourne, Australia