The Political Economy of Banking Regulation - Does the Basel 3 Accord Imply a Change?

Abstract

Literature on the international financial architecture suggests that financial crises have had profound effects on both the balance of power in the establishment of financial regulation, and the economic impact of regulation on countries and regulated entities. In this article, we seek to add to this knowledge by studying the process by which the Basel Committee on Banking Supervision (BCBS) developed its third capital accord, the so-called Basel 3 accord. We also assess whether changes in BCBS’s governance and standard setting process may have caused the economic impact of Basel 3 to differ from the Committee’s preceding capital accords (Basel 1 and 2). Our findings indicate that the changes in the governance structure and influence of private actors seem to have led BCBS to develop a capital accord that is relatively less beneficial for large international banks and the traditional BCBS member countries. This suggests that a tilting of power in favor of emerging markets and publicly accountable authorities has occurred in the political economy of banking regulation and the international financial architecture.

Keywords: Political economy, International financial architecture, Basel Committee on Banking Supervision, Basel 3, Banking regulation

JEL Classification: F53, F59, P11, P16, G28