The Global Governance of Systemic Risk: How Measurement Practices Tame Macroprudential Politics

Abstract

This article explores how systemic risk has been governed at the international level after the financial crisis. While macroprudential ideas have been widely embraced, the policy instruments used to implement them have typically revolved more narrowly around the monitoring of risk posed by discrete 'systemically important' entities. This operational focus on individual entities sidelines the more radical implications of macroprudential theory regarding fallacies of composition, fundamental uncertainty and the public control of finance. We explain this tension using a performative understanding of risk as a socio-technical construction, and illustrate its underlying dynamics through case studies of systemic risk governance at the Financial Stability Board (FSB) and the International Monetary Fund (IMF or Fund). Drawing on official reports, consultation documents and archival sources, we argue that the FSB's and IMF's translations of systemic risk into a measurable and attributable object have undermined the transformative potential of the macroprudential agenda. The two cases illustrate how practices of quantification can make systemic risk seemingly more governable but ultimately more elusive.

Exclusive expertise: the boundary work of international organizations

“…Together with the FSB, the IMF has shaped debates about post-crisis financial regulation. Many of their recent activities in this realm have concentrated on the development of global standards for macroprudential policy (Kranke and Yarrow, 2019). Two joint IMF-FSB frameworks were initiated after the crisis at the behest of the G20: first, the Data Gaps Initiative (DGI) to ensure the availability of timely global financial data; and second, the Early Warning Exercise (EWE) to detect sources of systemic risks and prevent their build-up.…”

Valuing knowledge: The political economy of human capital accounting

“…Recent research has used these insights to extend the constructivist focus in IPE beyond an examination of the impact of economic discourse and language, to explore how apparently mundane technical and methodological practices such as macroeconomic indicators (Davis et al, 2012;Karabell, 2014;Kelley & Simmons, 2015;M€ ugge, 2016), accounting standards (Christophers, 2011;M€ ugge & Stellinga, 2015), financial risk metrics (Kranke & Yarrow, 2019) and international benchmarking practices (Broome & Quirk, 2015) also exercise important structuring effects on global economic policy: both directly, as the measurement of economic phenomena such as inflation has immediate distributive effects (M€ ugge, 2016); and indirectly, by framing the way in which governance problems are formulated and understood, 'locking in' certain theoretical understandings and assumptions and rendering phenomena that are harder to quantify less politically salient (Porter, 1996;Miller, 2008).…”

What do stress tests test? Experimentation, demonstration, and the sociotechnical performance of regulatory science

“…Those fears are heightened in the case of the Bank’s macroprudential regulation, given how far it pushes beyond the economic knowledge sanctioned by academic research communities (Thiemann, ; Thiemann, Aldegwy, & Ibrocevic, ). The financial cycle that the Bank’s scenarios and countercyclical buffer are anchored to remains an uncertain theoretical postulate, contingent to a large extent upon the measurement device applied to financial and macroeconomic data (Kranke & Yarrow, ; Stellinga, ). A regulator at the Bank conceded: “there’s never going to be a single financial cycle, it depends on what approach you take to try and estimate it” (Interview, March 15, 2019).…”