an article by Scott James (King’s College London, UK) and Lucia Quaglia (University of Bologna, Italy) published in Journal of Public Policy Volume 39 Issue 1 (March 2019)
Abstract
What explains national preferences concerning international and regional financial regulation?
This article focuses on one of the main financial jurisdictions worldwide, the United Kingdom (UK).
It is puzzling that since the crisis this jurisdiction has pursued stringent harmonised regulation in certain areas (banking), but not others (capital markets). We explain this in terms of how the demands of powerful economic interests are mediated by the political process and regulatory institutions.
In banking, there was strong political pressure to restore financial stability, and regulatory institutions were significantly strengthened. This enabled UK regulators to resist industry lobbying and pursue more stringent harmonised rules at the international and European Union levels (“trading up”).
In the case of capital markets, by contrast, UK regulators lacked political support for tougher regulation and were institutionally much weaker. As a result, the industry was far more effective in shaping UK preferences aimed at protecting the sector’s competitiveness (“trading down”).
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