In person icon The Politics and Political Economy of Bank Reform: Ten Years after the Financial Crisis

The bank failures and bailouts of 2007-08 were a major determinant of the subsequent fiscal consolidation efforts in a number of countries over the past decade (Blythe 2013). The bailouts caused a dramatic increase in public deficits, whilst the subsequent slowdown in economic output can be traced – in many cases – to the credit crunch and reduction in bank lending; or the failure of the monetary policy transmission mechanism – in other cases – in which private banks play a central role. In turn, these austerity measures have been a major causal factor of the rise of nationalism and populism that proved so significant in 2016. The international financial crisis revealed two major problems at the heart of Western banking systems: firstly, that regulatory and supervisory frameworks were grossly ill-equipped to delimit the complex activities, size and influence of the largest financial institutions; and secondly, that cultural changes – associated with a heightened risk appetite – had reshaped banking systems, with devastating consequences (G30 2011, Haldane 2009). The main focus of bank (and broader financial) regulatory and supervisory reform efforts at the national, European Union, and global levels has been to tackle those banking activities and structures that create systemic risk. These efforts have included the introduction of: recovery and resolution regimes – providing additional legal powers to regulators to intervene in struggling financial institutions; bail-in schemes – to ensure that shareholders bear the first costs of failing institutions, rather than government through bailouts; ring-fences – so that authorities are no longer liable for the higher-risk activities banks engage in; new bank accountability regimes, with criminal sanctions for misconduct; ‘softer’ cultural, standard-setting efforts; and heightened micro-prudential supervisory powers – including macro-prudential supervision of ‘systemic’ risks. Yet almost a decade after the onset of the financial crisis, opinion is divided over the impact of regulatory and supervisory reforms, and the desirability of further reform. While the political salience of bank reform has diminished, a range of crucial issues remain. Critics note that many of the larger banks have increased in size through further consolidations; scandals associated with misconduct and fraud continue to make headlines; the shadow banking sector continues to flourish; and the efficacy of new regulation and supervisory powers is questioned. The aim of this workshop is to examine these bank reform measures, which remain of utmost importance to public policy in a large range of countries. For the purposes of this workshop, this broad aim can be translated into three empirical objectives: (1) to examine the state of play of regulatory and supervisory efforts aimed at addressing the sources of instability in western banking systems (2) to examine the evidence of structural change within the banking sector itself and (3) to examine the connections between banking sector reform and wider political trends a decade after the start of the crisis. This proposed workshop offers academics working on the politics and political economy of bank reform an opportunity to meet and exchange views, and share empirical work on reform efforts at the national, EU and global levels. The workshop provides these academics the opportunity to discuss their recent efforts to develop and apply theoretical and analytical frameworks that help to explain the politics and political economy of bank reform. There are at least six main areas of research with close links to our workshop: (1) Varieties of (financial) capitalism: for example, comparative political economy work on banking systems (Hardie and Howarth 2013) and the role of banks and financial systems in national capitalisms (Deeg 2015; Deeg, Hardie and Maxfield 2016). (2) Supranational (EU) governance: notably the work on EU financial regulation (including, for example, Quaglia 2012 and Howarth and Quaglia on EU financial regulation (2015) and Banking Union (2013, 14, 15 and 16) (3) International cooperation on (financial) regulation: for example, the role of transnational networks of regulators / supervisors in shaping international regulatory developments in the Financial Stability Board and the Basel Committee of Banking Supervisors (Tsingou 2013, Underhill, Blom, Mügge 2010); transatlantic cooperation on financial regulation (Quaglia 2014). (4) Regulatory Governance: work on financial regulation and regulatory systems by political scientists, public policy and legal scholars. (5) Banks (Financial Services) as a public policy interest group: see for example the work of James (forthcoming). (6) Bank management, organisational and operational development: see the work of Turk (forthcoming). Academic rationale for the workshop In recent years there have been a good number of Joint Session Workshops devoted to various aspects of the financial crisis and multi-level governance. More specifically, at Munster (2010) one workshop explored the construction and performativity of credit markets; another, at St Gallen (2011) examined the relationship between financial markets and political elections; a workshop at Antwerp (2012) focused on crises as a form of ideational politics; then at Salamanca (2014) a workshop focused on the delegation of national banking supervision to supranational authorities; and at Pisa (2016) there was a workshop devoted to the political science and political economy of central banking. Our proposed workshop for the 2018 Joint Sessions differs from these previous events in at least two respects. First, it provides a rare opportunity to bring together political scientists (and academics from neighbouring disciplines) to engage in collaborative work on banking regulation and supervisory issues. One notable exception was our last workshop at the 2014 Joint Sessions in Salamanca. By all counts this was an immense success and resulted in three journal special issues on the politics and political economy of banking supervision – two edited by Huw Macartney and Rachel Epstein (Journal of Banking Regulation 2016), and another by Huw Macartney and David Howarth (West European Politics, May 2016). Our proposed workshop aims to build on this research agenda. Second, our proposed workshop is devoted to a broader set of themes — which combine the regulatory / supervisory focus of the 2014 workshop with a more original focus on bank structures and banking systems as well as a concern to link bank reform to broader political trends.