A Theory of Everything: A Historically Grounded Understanding of Soft Law – and the BIS

Abstract

This essay, written on the occasion of the 90th anniversary of the creation of the Bank for International Settlements, argues that soft law’s origins in financial regulation lay in the particular institutional evolution of the BIS prior to the articulation of bank capital standards. As will be shown, institutional innovations tied with the Bank’s navigation of the politics and economic particularities of World War I reparations would enable the informality and expert-driven systems that would one day characterise today’s modern ‘Basel Process’ of technocratic decision-making. Furthermore, soft law, far from being an entirely radical break with the economic diplomacy of the times, was in fact merely the next step in an evolution of the Bank that in its deployment would not only enhance the credibility of non-binding understandings and accords in international economic diplomacy, but also help to solidify and elevate the very stature of the BIS. It is indeed no coincidence that soft law would be deployed as a governance mechanism at the BIS in particular as the international regulatory community turned to the challenge of prudential supervision – or that the BIS would conceive of soft law specifically to further urgent financial-market reforms in the post-Bretton Woods era.

Keywords: Soft Law; Bank for International Settlements; International Monetary Fund