Tracing policy influence of diffuse interests: the post-crisis consumer finance protection politics in the US

Dodd–Frank, the financial reform law passed in the United States in response to the 2008 financial crisis, established the Consumer Financial Protection Bureau, a new federal regulator with the sole responsibility of protecting consumers from unfair, deceptive, or abusive practices. This decision marked the end of a highly politicized reform debate in the US Congress, in which proponents of the new bureau would normally have been considered to be much weaker than its opponents. Paradoxically, an emerging civil society coalition successfully lobbied decision-makers and countered industry attempts to prevent industry capture. What explains the fact that rather weak and peripheral actors prevailed over more resourceful and dominant actors? The goal of this study is to examine and challenge questions of regulatory capture by concentrated industry interests in the reform debates in response to the credit crisis which originated in the US in 2007. The analysis suggests that for weak actors to prevail in policy conflicts over established, resource-rich opponents, they must undertake broad coalition building among themselves and with influential elite allies outside and inside of Congress who share the same policy goals.     

Financial industry groups' adaptation to the post‐crisis regulatory environment: Changing approaches to the policy cycle

This article explores the advocacy efforts of financial industry groups since the financial crisis. I describe key changes in the post‐crisis financial regulatory environment and argue that financial industry groups have adapted their advocacy strategies to these new conditions in innovative ways. Faced with a more challenging environment, financial industry groups have shifted their emphasis along the different stages of the policy cycle. Specifically, increased issue salience and a strained policy network have weakened financial industry groups' capacity to veto regulatory proposals at the stage of actual policy formulation. Focusing on the advocacy strategies of the global banking and derivatives industries, I show evidence that the response has been to invest in more subtle advocacy strategies which focus on other stages of the policymaking cycle. Self‐regulatory moves attempt to affect the agenda setting stage of policymaking, and a strong focus on the timing, rather than the content of new regulations, has attempted to affect the implementation stage. Such a transformation of advocacy strategies differs sharply from most depictions of financial industry groups simply “blocking” regulatory change since the global financial crisis.     

Unity and conflict: Explaining financial industry lobbying success in European Union public consultations

This article examines the contingent nature of financial industry lobbying power in the context of the policy formation stage of six European Commission regulatory proposals. I argue that lobbying success is a function of how well finance is able to speak with a unified voice. Building on existing studies, I examine industry unity as explicit preference alignment between actors but also in terms of actors abstaining from stating preferences. Staying silent on an issue sends signals to policymakers about issue saliency and industry support. Using a novel dataset derived from document coding and interviews, I examine the impact of industry unity on lobbying success in shaping six financial regulatory proposals in the context of the European Union. My findings show that lobbying success is partially contingent on the extent to which finance is united behind a common position. Critically, however, lobbying success is also related to the nature of that position, whether supporting the proposal or whether in favor of strengthening or weakening regulatory stringency.     

The Politics of Financial Regulatory Reform in Britain and Germany

Over the past decade, Britain and Germany have both made fundamental changes to their financial regulatory regimes with the creation of single powerful regulators. In both cases, this meant either ending or severely limiting the regulatory role of central banks. This article argues that the creation of these new regulatory actors cannot be understood without reference to the preferences of domestic political actors responding to the increased political salience of financial regulation as a policy issue. The result was distinct partisan differences about institutional design and responsibilities with centre-left parties seeking regulatory actors clearly accountable to government and parliament. Such an account of institutional change is in contrast to previous accounts of the evolution of financial regulation that are largely exogenous to domestic politics.     

Salience and Complexity in Supranational Policymaking: The Case of Subnational Interests

This study examined whether Gormley's insights about the effects of public salience and technical complexity on the patterns of participation in the regulatory process have explanatory power in an international setting. Specifically, I tracked 60 legislative proposals initiated by the European Commission and estimated the change made by the supranational technocrats in response to the requests of subnational politicians. I found support for the theoretical propositions about the differentiated effect of salience and complexity on political and administrative actors. Consistent with the notion of bureaucratic expertise, the Commission is less responsive when the policy issues require expertise to be tackled efficiently. Although the European Union has been pursuing various mechanisms to democratize its policy process, the technical character of supranational regulation precludes the broader public and elected politicians from assuming a larger role and bureaucracy will continue to be a major player in the international arena.     

Reputation management as an interplay of structure and agency: A strategic-relational approach

Reputation scholars in the field of regulation tend to focus on the strategic nature—or: “agency”—of reputation management. We know fairly little about the precise nature of the dynamics and conflicts between structural and agential factors that are experienced by regulators in practice, and how these dynamics impact reputation management and its outcomes. This study addresses these questions, using conceptual language from the strategic-relational approach to study the reputation management of the Belgian financial regulator during an event of high reputational salience: the global financial crisis. The results present an image of a regulator as a strategic actor who—either consciously or more intuitively—calculated its possible moves in light of a strategically selective context (which, in turn, was constantly evolving as a result of strategic actions). This contributes to a more complex and behaviorally realistic understanding of regulatory reputation management.     

Still a poster child for social investment? Changing regulatory dynamics of early childhood education and care in Denmark and Sweden

This paper investigates the regulation of publicly organized early childhood education and care (ECEC) in Denmark and Sweden, through the regulatory welfare state (RWS) framework. The analysis focuses on how alterations in funding and quality of care are shaped by governmental and nongovernmental actors at national and local levels of government. Through focused structured analysis, we examine how various actors have shaped the funding and quality of childcare in Denmark and Sweden, from the early 2000s to 2020, with special attention to the period during and after the 2008 financial crisis. In the aftermath of the financial crisis, concerns about quality in care were raised on the political agenda by various actors in both countries, leading to decisions to improve the quality of care. Yet, the regulatory dynamics differ: In Denmark, the debate led to a decision in 2019, to implement a minimum statutory requirement of regulatory quality standards. From an RWS perspective, this outcome can be qualified as “double expansion,” because regulatory quality standards, and public funding for childcare increased. In Sweden, the debates about quality of ECEC led, in 2016, to political guidelines about quality standard, but with no additional national funds, and no mandatory regulatory quality requirements. Analytically, this can be qualified as “regulatory-led expansion,” that is requirements for quality standards, although the lack of additional national funds suggests that it will be difficult to improve ECEC quality substantially. The RWS perspective, which focuses on national and municipal levels of governance, also gives insights into hidden inequalities between municipalities regarding funding and quality of ECEC, which are more pronounced in Sweden than in Denmark.     

Explanations of the Financial Meltdown and the Present Recession

The concern of this article is to locate the unfolding literature that seeks to explain the present financial crisis into three dimensions of contestability. The major areas of disagreements between various authors include: the role of government; the issues of whether the recession was unavoidable or whether it was inevitable; and the area of ideas and ideals and how economic ideas shaped and influenced the policy process. These explanations include the pragmatists and all that literature that had a time dimension of major actors trying to produce policies that aimed to stabilise the financial markets. These policy makers did not have the benefit of hindsight but were concerned that the financial markets were so fragile that there was no other choice but for governments to intervene. By contrast, there were the market fundamentalists who argued that the pragmatists had got it wrong and were therefore highly critical of the Federal Reserve and the Treasury and tended to blame the recession on government housing policy. Institutionalists have argued that the regulatory system is broken, while structuralists tend to focus on growing income inequalities, the concentration of wealth and how the changing structure explains the recession in the sense that households took the avenue of higher debt on their homes to sustain higher levels of consumption. Finally, there is the Keynesian Collectivist argument that points to the limits of Rational Expectations and Efficient markets. No one really know who is right, but the fierce debate that is emerging is highly important in that each explanation seeks to provide a framework for policy making     

Introduction to Neumann: law and socialist political theory

Abstract

Regulators attempt to understand financial markets and their risks in terms of categories of knowledge and datasets that are defined and produced by the markets. However, regulators cannot adequately interpret or utilize such knowledge, for reasons including their social distance from the sites of knowledge production, the diversity of financial firms’ proprietary risk models, firms’ abilities to game the rules thus rendering the ‘metrics’ meaningless and several backfiring aspects of global regulatory networking and reform. Calls for yet more information about trading, posed in terms of the merits of transparency, result in information swamping of regulators. Meanwhile, while policy-makers tinker with regulatory structures (‘architecture’), political reaction to the crisis de-legitimizes public regulation as a project. Yet there is one positive aspect of the reforms – enhancing powers for ‘resolution’ of financial firms in ways that impact upon investors while minimizing wider destabilization – upon which the regulatory information requirement can and should be refocused. To protect the public interest, legal transparency is required, trading transparency is not. This paper introduces these issues by drawing on critical work on transparency and markets.     

Schattschneider in Brussels: How Policy Conflict Reshaped the Biotechnology Agenda in the European Union

This article asks why the European Commission lost control over the policy process in one of the most contested areas of policy-making in the European Union in recent years. The article finds that after years of vigorous political controversy over the framing of the issues at stake, the EU finally shifted into a Schattschneiderian mode of politics. The policy conflict expanded dramatically and a previously unrelated set of actors and interests united along new lines of policy debate. The analysis underscores how the political mode of EU decision-making can shift during the process of policy-making. In particular, it stresses how policy conflicts affect the mobilisation and demobilisation of political contestants and the realignment of political actors in the European Union.     

Anatomy of agency capture: An organizational typology for diagnosing and remedying capture

Recent crises and disasters in regulated industries have renewed scholarly attention to regulatory capture. The present research incorporates and builds on these efforts by creating a typology to help researchers and practitioners organize the capture literature. The typology has two dimensions: the degree of coordination within the regulated industry, the agents of capture; and the scope of capture within the agency and elected officials, the targets of capture. I illustrate the utility of the typology by using a case study of banking regulation before the 2008 global financial crisis. The case study uses process‐tracing methodology to weigh evidence about the role and scope of capture in creating the crisis. The contributions of this research are twofold. First, for capture theory, the typology assists in organizing the disparate, multidisciplinary research on capture mechanisms and remedies. Second, for practice, this organization can lead to more accurate diagnoses about the scope of capture and suggest appropriately tailored remedies.     

Neo-corporatist theory and the politics of industrial decline

Abstract. The case of the French textile and clothing industry during the post-1974 crisis period illustrates a number of issues relevant to the debate about meso-corporatism and interest intermediation at the sectoral level in industry. It highlights the importance of attempts to understand the relationships between organised interests and the state in the analysis of the policy process. The pattern of state-industry relations which evolved was crucial in determining the outcome of conflict between state and industry over the management of restructuring during the crisis.
The inapplicability of the meso-corporatist model to this case becomes clear. There was a conspicuous absence of either political exchange or a shared policy agenda, each an important element of corporatist patterns of policy formation, in both the formation and implementation of adjustment policies in the sector. Mutual suspicion and a struggle to control the terms of the debate yielded a low level of co-operation. Eventually the industry was able to appropriate increased public funds on its own terms and to insist on a protective trade regime.
The complexity of the case points to the need to broaden the debate over models of interest intermediation and to relate it to issues in political economy. This is particularly important with regard to the structure of the bureaucratic state and notions of state autonomy.     

The Determinants of Salience of Energy Issues

Studies show that salience of an issue influences the behavior of political elites, policy responses, and the attitudes of the public. Yet while the effects of salience are given considerable attention, less is known about the factors that produce salience. Specifically, what are the determinants of an issue's salience? We examine salience of energy issues in the United States over the past six decades and make two contributions. First, we provide systematic explanations of issue salience. Second, contrary to popular conceptions that energy salience is driven entirely by gasoline prices, or some scholarly analyses that salience depends on crises, we argue that other factors increase salience. Specifically, we find that political actors and activities increase energy salience, even after controlling for higher gas prices and shocks. This is an important finding; political dynamics enhance salience. Meaningful political action, therefore, driven by enhanced salience, is not entirely dependent on market forces or unplanned events.     

Regulating finance after the crisis: Unveiling the different dynamics of the regulatory process

It is now widely recognized that regulatory failures contributed to the onset of the global financial crisis. Redressing such failures has, thus, been a key policy priority in the post‐crisis reform agenda at both the domestic and international levels. This special issue investigates the process of post‐crisis financial regulatory reform in a number of crucial issue areas, including the rules and arrangements that govern financial supervision, offshore financial centers and shadow banking, the financial industry's involvement in global regulatory processes, and macroeconomic modeling. In so doing, the main purpose of this special issue is to shed light on an often understudied aspect in regulation literature: the variation in the dynamics of regulatory change. Contributors examine the different dynamics of regulatory change observed post‐crisis and explain variations by accounting for the interaction between institutional factors, on the one hand, and the activity of change agents and veto players involved in the regulatory reform process, on the other.     

Anti-racism,racism and asylum-seekers in France

Anti-racist movements in France have been characterized by their strong political orientation and their tendency to be highly centralized. However, in the past decade the increasing salience of the position of ‘new immigrants’, a term that in France is used to include asylum-seekers, has been accompanied by a shift in the form and content of anti-racist mobilization. Support for asylum-seekers has been provided by a multiplicity of specialist national and local organizations developing modes of solidarity that are more akin to welfare, social work or humanitarian aid than the more directly and overtly political interventions common among French anti-racists. At the same time local committees have developed in places of high tension, but at some distance from the political limelight of Paris. Lloyd examines some of these developments in the context of the crisis of provision for asylum-seekers in France. After setting out some basic information about asylum, undocumented migrants and the law in France she examines the political debate about ‘the new immigrants’ and racism. Comparing the relatively successful sans papiers movement of the 1990s with the difficulties of organizing among and with more isolated, transient and socially deprived asylum-seekers, she discusses the way in which this new set of issues has challenged the main anti-racist organizations and given rise to new actors and alliances.     

Debt in just societies: A general framework for regulating credit

Debt presents a dilemma to societies: successful societies benefit from a substantial infrastructure of consumer, commercial, corporate, and sovereign debt but debt can cause substantial private and social harm. Pre‐crisis and post‐crisis solutions have seesawed between subsidizing and restricting debt, between leveraging and deleveraging. A consensus exists among governments and international financial institutions that financial stability is the fundamental normative principle underlying financial regulation. Financial stability, however, is insensitive to equality concerns and can produce morally impermissible aggregations in which the least advantaged in a society are made worse off. Solutions based only on financial stability can restrict debt without accounting for the risk of harm to persons least able to bear the risk, worsen preexisting inequalities, destroy or impair the net worth of households, and impose unfavorable distributive consequences. This article offers a new approach to assist policymakers in developing and evaluating regulation to take criteria in addition to financial stability into account, but which do not undermine the aim of financial stability. It calls for a luck egalitarian approach, offering policymakers options to take the debtor's choices into account while still accounting for cognitive mistakes people often make in debt decisionmaking. It offers a general framework for the underlying principles for the regulation of debt: its focus is not on any particular forms of debt or its regulation but in structuring debt regulation more generally. It offers a set of recommendations on how regulators can take concerns about luck and equality into account in regulatory design.     

Power and changing modes of governance in the euro crisis

Which European Union actors are most powerful in the governance of the euro crisis? The euro crisis has reignited the classic debate between intergovernmentalists, who tend to stress the coercive power of dominant member states in the European Council, and supranationalists, who maintain that through the use of institutional power, the Commission, and the European Central Bank turned out the “winners” of the crisis. This article argues that euro crisis governance is best understood not just in terms of one form of power but instead as evolving through different constellations of coercive, institutional, and ideational power that favored different EU actors over the course of the crisis, from the initial fast‐burning phase (2010–2012), where the coercive and ideational power of Northern European member states in the European Council was strongest, to the slow‐burning phase (2012–2016), when greater influence was afforded supranational actors through the use of ideational and institutional power.     

The unstable core of global finance: Contingent valuation and governance of international accounting standards

Accounting standards are the foundations of the financial regulatory edifice, and global financial governance is no more stable than the asset valuations that feed it. Yet for two decades and up to this day, no international accounting rule for financial instruments – the bulk of banks' balance sheets – has emerged that was more than a temporary fix, to be succeeded by further reforms. We show how banking regulators have been central to this dynamic and how their support for applying fair value accounting to financial instruments, the cornerstone of regulatory debate, has oscillated throughout the whole period. The two common international political economy approaches to global financial governance, which analyze it either as interest‐based bargaining or as ideas‐driven expert governance, fail to account for this pattern. In contrast, we show how the contingency of financial valuations itself has made it impossible for regulators to embrace or reject a stable set of accounting rules.     

The problem of regulatory arbitrage: A transaction cost economics perspective

Regulatory arbitrage, or the ability of financial firms to circumvent or neutralize rules, is a classic problem of financial regulation. This article draws on transaction cost economics (TCE) to reformulate this old problem, thus defining regulatory arbitrage as a contracting hazard arising from interactions between the regulator and regulated firms, given bounded rationality and opportunism. Following standard TCE, the article first characterizes the implicit regulatory contract in finance, focusing in particular on the mobile and elastic nature of regulated actors and financial assets as well as the contested utility of financial innovation. It is then argued that this incomplete and hazard-prone regulatory bargain must be matched with a governance structure that both adapts to unforeseen circumstances and avoidance strategies and copes with radical uncertainty about the welfare consequences of financial innovation. To that end, the article discusses how a governance structure here termed “relational regulation” might facilitate such ex post governance under uncertainty.     

Rule omission,rule migration and the limits of financial industry power

This paper seeks to deepen our understanding of financial industry lobbying efforts that result in specific regulatory rules being dropped from the regulatory agenda, or what we call ‘rule omission’. Critically, existing research either ignores rule omission or characterizes it as the pinnacle of lobbying success. We argue that only in carefully mapping out industry preferences and tracking what happens to rules following their omission can we say something about the extent to which finance wins or loses in its effort to shape regulation. Our analysis is based on two in-depth case studies from the European Union: (1) solvency rules in the Institutions for Occupational Retirement Provision Directive (IORPP II), where rule omission does reflect a strong case of industry influence; and (2) short selling rules in the Alternative Investment Fund Managers Directive (AIFMD), a case of rule omission resulting in more stringent rules over industry activities.