Regulators and the quest for coherence in finance: The case of loss absorbing capacity for banks

Abstract

After the international financial crisis, new financial regulation was adopted at the international, regional and national levels, raising the issue of how to promote regulatory coherence, defined as the consistency between the rules adopted at different governance levels and in a variety of policy venues. A major recent area of reform concerned the loss absorbing capacity (LAC) of banks. In practice, the lack of regulatory coherence concerning LAC hampers the effective resolution of large international banks in a timely manner, ultimately undermining financial stability. We examine the role of regulators in the quest for coherence on LAC, explaining the incentives they had and how they deployed their delegated competences at different levels to achieve coherent rules that ensure financial stability. Theoretically, we combine insights from the public administration and political economy literatures. Methodologically, we process trace the making of LAC rules on three governance levels and in multiple policy venues.

Explaining the EU’s Uneven Influence Across the International Regime Complex in Shadow Banking

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“…Precision refers to the granularity of the rules. Consistency means that the rules issued by various bodies do not contradict each other and are, instead, compatible (Quaglia and Spendzharova 2019), working together towards the same purpose. One can observe consistency when, for example, the regulatory objectives and instruments set by one set of rules underpin (or, at least, do not contradict) other rules, or when concepts defined and measured by one set of rules are used in the same way by other rules.…”

Central banks under stress: Reputation, accountability and regulatory coherence

“…Where international standards have been developed, the substance and timing of their implementation at the national level have tended to differ, reflecting national idiosyncrasies, such as differences in accounting standards, tax and insolvency laws, and the preferences of domestic interest groups. As the article by Quaglia and Spendzharova () highlights, a key challenge facing central banks is establishing coherent regulatory regimes, which can minimize financial stability risks associated with market participants exploiting cross‐jurisdictional regulatory divergences.…”

“…Other articles in this symposium focus on issues of accountability that have long attracted the attention of public administration scholars, including how technocrats find legitimacy for their policy ideas (Ban and Patenaude ; Thiemann ) and the channels through which policy‐makers can hold independent agencies to account over time (Högenauer and Howarth ). Finally, the article by Quaglia and Spendharova () examines the conditions under which central banks have been able to develop coherent approaches to the management of cross‐border bank failures. This research should be of value to others interested in how public administrations respond to the challenges of transboundary crisis management, working across multiple levels of governance (see, for example, Boin and Lodge ).…”