The non‐reversal of delegation in international standard‐setting in finance: The Basel Committee and the European Union

Abstract

International non-majoritarian institutions (NMIs) in finance have proliferated over the last decades. The Basel Committee on Banking Supervision (BCBS) is the main international NMI in finance and the European Union (EU) is one of its core jurisdictions. Despite the far-reaching effects of international banking standards in the EU, especially the Basel accords, there has been limited politicization of delegation to the BCBS and no attempt to reverse it. Why? By taking a "soft" principal-agent approach, this paper points out two explanatory factors: the composite nature of both the principal and the agent. It also identifies a pattern that can be generalized to other international NMIs in finance. Thus, following the initial delegation of international standard-setting to the BCBS, this international NMI considerably increased its activities, going beyond what certain elected officials wanted; the response from elected officials was limited to the use of relatively weak ex-ante and ex-post controls, including delayed compliance.

Central bank independence in Latin America: Politicization and de‐delegation

“…As we have shown, in contrast with other cases analyzed in this special issue (Pollack, 2022; Quaglia, 2022; Stone Sweet & Sandholdz, 2022), in Latin America, reversals of legal, formal delegation of monetary policy have been rare. That broad reluctance to back‐track on politically costly constraints is linked, we suggest, to the costs of deviating from the broad consensus elevating CBI to the status of best practice.…”

“…The variation of these factors in Latin America leads us to expect limited politicization and minor instances of de‐delegation, rather than massive legislative changes. In contrast with other cases studied in this special issue in which reversals appear to be non‐existent (Pollack, 2022; Quaglia, 2022; Stone Sweet & Sandholdz, 2022), between 1970 and 2019, Latin American countries saw 13 clear reversals of delegated legal independence to central banks . In those instances, de‐delegation mostly involved small, incremental changes in legislation, without prior major efforts to delegitimize central banks as institutions.…”

Central bank independence in Latin America: Politicization and de-delegation

“…As we have shown, in contrast with other cases analyzed in this special issue (Pollack, 2022;Quaglia, 2022;Stone Sweet & Sandholdz, 2022), in Latin America, reversals of legal, formal delegation of monetary policy have been rare. That broad reluctance to back-track on politically costly constraints is linked, we suggest, to the costs of deviating from the broad consensus elevating CBI to the status of best practice.…”

“…The variation of these factors in Latin America leads us to expect limited politicization and minor instances of de-delegation, rather than massive legislative changes. In contrast with other cases studied in this special issue in which reversals appear to be non-existent (Pollack, 2022;Quaglia, 2022;Stone Sweet & Sandholdz, 2022), between 1970 and 2019, Latin American countries saw 13 clear reversals of delegated legal independence to central banks. In those instances, de-delegation mostly involved small, incremental changes in legislation, without prior major efforts to delegitimize central banks as institutions.…”

“…That broad reluctance to back-track on politically costly constraints is linked, we suggest, to the costs of deviating from the broad consensus elevating CBI to the status of best practice. We further argue that, in the shadow of those persistently high costs, the instances and magnitude of challenges to delegation can be explained by looking at increased preference distance between the principal and the agent, and the procedural hurdles to alter the status quo delegation-which could explain the rarity of de-delegation in multilevel governance contexts (Pollack, 2022;Quaglia, 2022;. A review of the instances of irregular replacement of central banks governors, politicization, and de-delegation of different magnitude in Latin America support the plausibility of our argument.…”