Globalized Finance and National Regulation: The Influence of Internationalization on Supervisory Consolidation

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Abstract:

Financial regulatory reform remains high on global and national political agendas. Some proposals call for the consolidation of regulatory structures by merging or eliminating existing regulatory agencies. Financial supervisory consolidation has occurred in a number of developed countries over the past two and a half decades. This paper seeks to explain why a substantial number of developed countries have opted to reform their financial regulatory structures from a sector-based to a consolidated model. Based on an ordered logit regression analysis of a newly created cross-national financial data set, this paper argues against the prevailing literature on globalization that discounts the influence of multinational firms on domestic politics. Moreover, it disputes the assumptions of realist and policy-diffusion perspectives that prioritize hegemonic market power. This paper demonstrates how the internationalization of finance, through the spread of global financial services firms (“conglomerates”), has driven supervisory consolidation in developed countries. These global firms prefer reduced compliance costs through the elimination of duplicative regulation. Motivated by competitiveness concerns, politicians and regulators in highly internationalized countries are pressured to consolidate financial supervision, lest they cause global firms to move elsewhere because of unfavourably duplicative regulation. A consolidated supervisor offers lower compliance costs compared to a system of sector-based supervisors by eliminating duplicative regulation. In sum, the higher the level of financial internationalization in a country, the greater the level of supervisory consolidation.

Document Type: Research Article

Publication date: February 1, 2011

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  • The St Antony's International Review (STAIR) is the only peer-reviewed journal of international affairs at the University of Oxford. Set up by graduate students of St Antony's College in 2005, the Review has carved out a distinctive niche as a cross-disciplinary outlet for research on the most pressing contemporary global issues, providing a forum in which emerging scholars can publish their work alongside established academics and policymakers. Past contributors include Robert O. Keohane, James N. Rosenau, and Alfred Stepan.
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