Transatlantic Competition Over Institutional Design

In 1996, Martha Finnemore noted in National Interests in International Society that no matter how technical international organizations might seem, they “are never neutral forms.” In his new article, Alexander Reisenbichler, former DAAD/AICGS fellow, studies the domestic sources and power dynamics of regulatory networks using the example of the financial stability forum (FSF), a regulatory body created in 1999, and dubbed the “fourth pillar” of global economic governance (following the International Monetary Fund, the World Bank, and the World Trade Organization) by former U.S. Secretary of the Treasury Timothy Geithner. The FSF was renamed the Financial Stability Board (FSB) in 2009, and has since retained that name.

Reisenbichler argues that existing theories in international political economy have, until today, largely understudied how and why states choose between different structures when modeling new international regulatory networks. By examining the specific design of the FSF, he shows that conditions under which states prefer a specific design are no coincidence. In fact, the article demonstrates that states always bargain over competing designs. To support this idea, the article introduces two different designs that correspond to diverging state preferences. Reisenbichler shows that the design favored by the U.S. for the creation of the FSF was a “state-centered” design driven by government representatives (i.e., finance ministries), whereas European countries privileged a so-called “technocratic” network driven by independent regulators drawn from international bodies.

Despite the fact that the mandate of the FSF is a neutral one (to set and harmonize financial standards across countries and sectors), the U.S. largely managed to ensure its control over the design of the FSF according to preferences that are derived from domestic economic traditions. The author compares other proposals for designing the FSF made by Germany (Bundesbank proposal), the UK (Brown proposal), France, Canada, and Japan. He shows that the German proposal purposely circumvented finance ministries by involving international financial institutions (IFIs) and global regulators without any national representatives, which was opposed by the U.S. that argued that advancing global financial regulation would require some national input. To sum up, the U.S. also feared that de-emphasizing the role of national governments by instead championing the involvement of IFIs and global regulators would have allowed these organizations to establish and enforce financial standards of competing jurisdictions and interests.

Eventually, the article demonstrates that, given the fact that the U.S. was the strongest financial power in the late 1990s, it was able to use its political energy and bargaining weight to shape the regulatory framework of the FSF in a preferred direction, privileging finance ministries, which neither domestic nor global technocrats would have guaranteed.

From a historical perspective, one of the main contributions of the article is to offer a very comprehensive account of how and why the FSF was established, and also to give a sense of its importance on the global financial scene. Reisenbichler uses archival material, public statements, and interviews with key policymakers in order to provide clearer accounting for preferences and bargaining capabilities of each party involved.

 

Link to the article: http://www.tandfonline.com/doi/full/10.1080/09692290.2015.1019539

For the full reference: Alexander Reisenbichler, “The Domestic Sources and Power Dynamics of Regulatory Networks: Evidence from the Financial Stability Forum.” Review of International Political Economy (2015).

The views expressed are those of the author(s) alone. They do not necessarily reflect the views of the American Institute for Contemporary German Studies.