A globalization laboratory: European banking regulation and global capitalism in the 1970s and early 1980s

Abstract

The 1970s are often portrayed as the beginning of a new era of finance capitalism. The growth and internationalisation of banks' balance sheets, together with the return of banking crises, were important changes of the decade, and for the global evolution of capitalism. How did banking regulation and supervision react to this evolving environment? The literature places considerable emphasis on the role of the United States and, to a lesser extent, of the United Kingdom and Japan, in the emergence of global standards in banking regulation and supervision, and neglects the EEC influence. Based on the archives of central banks, international organisations and of one bankers' association, this article explores the relationships between the European and the global discussions in the development of international banking regulation and supervision. The article focuses on two case studies: the use of consolidation as a supervisory technique, which was the object of a Council directive in 1983; and EEC observation ratios, which were an early initiative of the EEC in the field of bank capital harmonisation. In both cases, parallel and connected discussions occurred in the European and global specialised committees, the Groupe de Contact and the Banking Advisory Committee on the EEC side, and the Basel Committee on Banking Supervision at the global level. The article examines the contacts between these committees and their reciprocal influence in their work, thereby shedding light on the connections between European integration and globalisation. It contends that the EEC played a more important role in the first steps of international banking regulation and supervision than commonly considered in the literature. The article further argues that European integration served as a globalisation laboratory in the field of banking regulation and supervision. Accordingly, the EEC used capitalism to foster its integration agenda but was soon overtaken by it.The regulation of the financial sector typically illustrates the close links between the process of European integration and globalisation. In the 1970s and 1980s, this sector experienced both a deep mutation and an increased number of failures and crises. A new era started with the chaos resulting from the end of the Bretton Woods system and the oil shock of 1973. These upheavals triggered regulatory reactions both at the domestic level and in the international arena, in order to cope with the rise of international banking and its associated risks. Banking supervision, that is the daily control of individual banks' activities to ensure the protection of depositors and the soundness of banking organisations, grew everywhere.However, international regulatory discussions had already started at the EEC level in the 1960s, without much connection with financial crises, but instead with a hope to coordinate and ideally harmonise the banking legislations of member countries. 1 International convergence and financial crisis prevention have thus been two important characteristics of bank...

From gentlemanly capitalism to lobbying capitalism: the City and the EEC, 1972–1992

“…Furthermore, by the 1980s, the global regulatory framework was changing fast, and the Basel Committee, on which the UK was well represented as Peter Cooke was its chairman, was working from 1982 on common regulatory standards in the field of capital adequacy (Drach 2019). The UK was famously instrumental in settling a secret agreement with the US on a preliminary standard measure, in order to force the other members of the Basel Committee – the Group of Ten countries plus Switzerland and Luxembourg – to accept the direction towards a formal common measure (Kapstein 1994; Wood 2005; Goodhart 2011).…”

Supervisors against regulation? The Basel Committee and country risk before the International Debt Crisis (1976–1982)

“…74 The famous agreement, known as Basel 1, also incorporated some country risk considerations in its system of risk weighting. However, it did not change the microfocus of banking supervision: instead, the crisis led to a focus on banks’ capital, which became the most crucial regulatory matter of the 1980s and the following decades (Kobrak 2015; Drach 2019). Studying the years preceding the crisis sheds light on the challenges that such a focus raises for the surveillance of the international financial system as a whole, and why Basel supervisors were against regulation in the late 1970s.…”