Coordinating monetary policy and macroprudential policy: Bureaucratic politics, regulatory intermediary, and bank lobbying
| Published date | 01 December 2022 |
| Author | Mehmet Kerem Coban |
| Date | 01 December 2022 |
| DOI | http://doi.org/10.1111/padm.12744 |
ORIGINAL ARTICLE
Coordinating monetary policy and
macroprudential policy: Bureaucratic politics,
regulatory intermediary, and bank lobbying
Mehmet Kerem Coban
GLODEM, Koc University, Istanbul, Turkey
Correspondence
Mehmet Kerem Coban, GLODEM, Koc
University, Rumelifeneri Yolu, 34450
Istanbul, Turkey.
Email: m.keremcoban@u.nus.edu
Funding information
PhD Academic Support Fund, Lee Kuan Yew
School of Public Policy, National University of
Singapore
Abstract
We tend to overlook the linkages between how policy coor-
dination within bureaucracy is achieved and the nontrivial
implications of policy coordination for business power over
the policy process. This article addresses this gap by explor-
ing macroprudential regulatory governance in Turkey.
Drawing on elite interviews and written sources, the article
argues that analytically and operationally more capable and
politically endorsed central bank subordinated the autono-
mous bank regulator, as the latter assumed a de facto regu-
latory intermediary role between the former and the
regulatee. Within this setting, the regulatee could not rely
on its structural and institutional power for mobilization of
instrumental power to contest and overturn macro-
prudential measures. The article contributes to our under-
standing of the conditions of policy coordination within
bureaucracy, how de jure regulator could be subordinated
as a de facto regulatory intermediary, and why influential
business power needs both a politically and bureaucratically
enabling setting.
1|INTRODUCTION
Before the Global Financial Crisis (GFC), the microprudential approach to bank regulatory and inflation-targeting
monetary policy focused on the financial soundness of individual banks. The GFC exposed “blind spots”in these pol-
icies, and an ideational shift occurred with the incorporation of the macroprudential approach that pays closer atten-
tion to risks within the financial system (Baker, 2013).
Received: 12 December 2020 Revised: 19 April 2021 Accepted: 22 April 2021
DOI: 10.1111/padm.12744
Public Admin. 2022;100:859–875. wileyonlinelibrary.com/journal/padm © 2021 John Wiley & Sons Ltd. 859
Similar to many cross-boundary policy problems such as climate change or poverty, financial instability has long-
lasting dramatic social, economic, and political consequences which we still observe in the aftermath of the GFC and
the Eurozone debt crisis (Hopkin, 2020). Managing such complex policy problems requires policy coordination within
the state apparatus and between state and nonstate actors. In macroprudential regulatory governance, the emer-
gence of macroprudential policy made coordination between macroprudential policy and monetary policy fundamen-
tal (Gieve & Provost, 2012) because macroprudential policy or monetary policy can hardly address macro-financial
risks (Borio, 2018, p. 7; Goodhart, 2011; IMF, 2011).
The need for policy coordination is more pronounced in fragmented regulatory governance structures wherein
coordination between monetary and macroprudential policy requires close interaction between at least two organi-
zations, which could be subject to bureaucratic political struggles given reputation concerns, mandate overlap, role
conflict, and divergent ontological approaches to policy problems (Bach & Wegrich, 2019; Best, 2016;
Busuioc, 2016; Cejudo & Michel, 2017; Peters, 1998,2015,2018; Wilson, 1989). Despite significant coordination
implications of the emergence of macroprudential policy, the current public policy and public administration litera-
ture is silent on this area.
Besides, the emergence of macroprudential policy has had nontrivial challenges for the banking sector and its
relative positioning in the policy process. The counter-cyclical logic of macroprudential policy has a substantial
impact on profitability through the tightening of leverage-taking during a boom period (Baker, 2015). Thus, the
regulatee is likely to contest the measures. Yet the current political economy literature ignores the extent of
the influence of the banking sector over the policymaking process by relying on its structural, instrumental, and insti-
tutional power, as well as the implications of policy coordination between monetary and macroprudential policy for
business power over the policy process (Lombardi & Moschella, 2017; Stellinga, 2020; Thiemann, 2019).
While public policy, public administration, and political economy literatures tend to ignore the above-mentioned
areas, this article explores how policy coordination is achieved as to when coregulators “find ways to cooperate on
[policy] solutions, [as they either voluntarily or by force converge on a shared agenda]”(Peters, 2018, p. 2; Bouckaert
et al., 2010, p. 16), and implications of policy coordination for structural, instrumental, and institutional power of the
banking sector. As such, it fills a significant gap on policy coordination in a fragmented regulatory governance struc-
ture and teases out the implications of policy coordination on business power over the policy process.
To this aim, the Turkish experience in macroprudential regulatory governance between 2011 and 2016 is
insightful: Turkey hosts a fragmented regulatory system in banking regulation wherein two coregulators, the central
bank (Central Bank of the Republic of Turkey [CBRT]) and the autonomous bank regulator (Banking Regulation and
Supervision Agency [BRSA]), operate side-by-side in the regulation of the banking sector. Although the fragmented
regulatory governance structure poses challenges to policy coordination, we observe intense policy action: Turkey
ranks in the top percentile among developing countries that made the most use of macroprudential policy
(i.e., tightening regulatory measures) after the GFC between 2010 and 2016 due to a dramatic rise in capital inflows
in this period (Boar et al., 2017, graph 1). Policy action at this level of intensity in a fragmented regulatory gover-
nance structure is puzzling: how policy coordination is achieved, and what impact it had on the extent of business power
over the policy process.
The articleexamines a puzzlingcase of policy coordination betweenthe CBRT and the BRSA. Theontological diver-
gence as conflicting assumptions aboutthe nature of financial(in)stability,causal relationshipsleading to (in)financial sta-
bility, and why and how financial (in)stability is(not) conceived as a policy problem triggered a “turf war”on
macroprudential policy. This could have caused coordination stasis. Yet we observe otherwise. More interestingly, policy
coordination betweenantagonistic coregulators isa deviant case for two reasons. First,coordination takesplace through
an interorganizational committee, the Financial Stability Committee (FSC), which aims to establish and steer inter-
organizational policy coordination on financial stability. FSCs have been diffused around the world in the post-GFC
period (Edge& Liang, 2019). Yet not all FSCs canachieve policy coordination, as they are created mostly for “symbolic”
political purposes (Lombardi & Moschella, 2017). Reflecting this,Goodhart (2015, p. 285) arguesthat policy coordination
in the FSC in the United States can rarely occur. In contrast, the Turkish case presents an intriguing case despite
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