(temporary): Does Flexibility help? Domestic financial regulatory variations within the frames of international agreements (international relations, IPE, institutions, political economy of global finance)

Thesis abstract-Thomas Girardet

The motivation for this potential research comes from the observations regarding differences of domestic implementations in global financial regulatory norms and standards. The multiple rounds of the Basel Accords (I, II, III) embody the most prominent agreements attempting to harmonize international regulation and global financial stability. Threats like a contagion from the default of one bank to the entire system urged countries to react quickly with stringent national regulatory measures. However, the need for a better international coordination remained a necessity, especially for the supervision of banking system. The Basel Accords aim to encourage better cooperation by establishing general guidelines and attainable standards in capital adequacy without biding ambitions. Indeed, it belongs solely to the states, on a voluntary basis, to interpret and mark out the implementation’s degree of these norms or “soft laws”.

There is a substantial literature about the variations of implementation of the Basel Accords but for the vast majority, it seems to focus more on the results and the consequences of these variations rather than their actual determinants and causes. Yet, promising studies are starting to pinpoint these questions by considering the role of central banks, the influence of global pressure or international financial institutions and the economic costs of such implementations. However, more than an analysis of variations of implementations between signatory countries and the Basel Accords requirements, I would like to investigate why some countries implement or interpret these regulatory norms differently than others. Hence goes the potential research question:

How can we explain domestic interstates’ variations regarding the implementation of the Basel Accords?

The research could try to consider the impact of domestic bank preferences, the macroeconomic environment, domestic political institutions or international imitation effects. Nonetheless, this thesis aims to put the emphasis on the role(s) of central banks and the political bias of the Accords. Sometimes, central banks are only in charge of price stability, leaving the task of supervising and enforcing global regulation to another entity. However, in some cases, they are in charge of both roles. In this situation, central banks might be less zealous to apply global regulation in order to favor price stability. Therefore, could we suppose that states with central banks having both roles might be less stringent to implement the standards rather than the states where the regulation task is separate in so as it is detained by another entity?

On a second note, the idea of a political bias of the Accords remains to be investigated. Concerning the assets’ risk-weighting, the standards seem to favor government bonds more than the majority of other types of assets. This raises two questions: are the capital-ratios’ standards a way for states to self-promote government bonds, and if so, do they favor some states more than others? OECD members benefit from the measures more than the non-members. Thus, in order to profit from this advantage, would they be more stringent to implement the Basel Accords?