Too big to fail, too hard to reform? Institutional veto points and bank business power in post-crisis banking regulation

Thesis

The political and economic consequences of the 2007/08 banking crisis, which forced national governments to rescue troubled banks with taxpayer money, have been the subject of a wide field of scholarship. Faced with the problem of too-big-to-fail banks, governments and policymakers have attempted to prevent future bailouts and fix the underlying phenomenon through different regulatory policies, posing a question for the political economy literature: Why did institutional settings with more concentrated banking sectors adopt stronger regulatory reforms to address too-big-to-fail? This thesis examines the policy mix between two interlinked pieces of regulatory change: bank structural reform and resolution reform. It introduces the theory of institutional veto points and bank business power to explain how different institutional settings shape the policy conflict and scope for policy reform under high political salience. Institutional rules in different settings determine which political actors sit at the veto point, giving more power to their crisis-shaped regulatory preferences. Actors such as executives, the electorate, parliaments and bureaucrats are receptive to different types of business power, and policy outcomes depend on the crisis-contingent power resources that banks leverage in the struggle over too-big-to-fail regulatory reform. The theoretical framework is tested through process tracing in four empirical case chapters, using evidence from 43 interviews with key policymakers, for four major institutional settings: direct democracy (Switzerland), direct parliamentary rule (Germany), semi-presidentialism (France) and international standard-setting (Financial Stability Board). The thesis demonstrates that some institutional arrangements enhance democratic responsiveness to public demand for policy reform. For policymakers, shifting seemingly technocratic debates into the democratic spotlight can help counter the powerful position of interest groups.

Authors: Hsieh, R

• DOI: 10.5287/ora-7egjn1zv8
• Type of award: DPhil
• Level of award: Doctoral
• Awarding institution: University of Oxford
• Language: English
• Keywords: banking regulation; too-big-to-fail; business power; veto points
• Subjects: Public policy; Comparative political economy