Posted: 1 Jul 2008
Date Written: August 2001
This paper seeks to ground financial regulatory choices in domestic politics. Based on evidence from 23 industrialized countries, we argue that electoral rules-specifically, the extent to which they are centrifugal or centripetal-have a significant effect on whether the banks or their consumers pay for the security of the banking system. Despite the homogenizing effects of global financial integration, moreover, the political dynamics generated by these electoral rules continue to shape the nature and extent of prudential regulations that countries adopt in the place of banking cartels.
We would like to thank Stephan Bub, Tim Clark, Geoff Garrett, Akinari Horii, Takeo Hoshi, Banri Kaeda, Susanne Luetz, Rieko McCarthy, Yoshimasa Nishimura, Thomas Oatley, Frank Packer, Marc Saidenberg, Michael Thies, Sei Nakai, and a number of other bankers and officials for helpful suggestions and comments. We are also grateful to Yoshiko Inoue, Jana Kunicova, Yuka Sumiya, and Mark Zimny for exceptional research assistance. Frances Rosenbluth thanks the Council on Foreign Relations for a fellowship to spend a year at the Federal Reserve Bank of New York (1999-2000). There were many people in the Bank whose help, of one kind or another, was indispensable.
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