Regulators and the quest for coherence in finance: The case of loss absorbing capacity for banks
| Date | 01 September 2019 |
| DOI | http://doi.org/10.1111/padm.12549 |
| Published date | 01 September 2019 |
SYMPOSIUM ARTICLE
Regulators and the quest for coherence in finance:
The case of loss absorbing capacity for banks
Lucia Quaglia
1
| Aneta Spendzharova
2
1
Department of Political Science, University of
Bologna, Bologna, Italy
2
Department of Political Science, University of
Maastricht, Maastricht, The Netherlands
Correspondence
Lucia Quaglia, Department of Political Science,
University of Bologna, via dei Bersaglieri,
Bologna 40128, Italy.
Email: lucia.quaglia@unibo.it
Funding information
Hanse Wissenschaft Kolleg, Grant/Award
Number: residential fellowship; Scuola
Normale Superiore, Grant/Award Number:
Residential fellowship
After the international financial crisis, new financial regulation was
adopted at the international, regional and national levels, raising
the issue of how to promote regulatory coherence, defined as the
consistency between the rules adopted at different governance
levels and in a variety of policy venues. A major recent area of
reform concerned the loss absorbing capacity (LAC) of banks. In
practice, the lack of regulatory coherence concerning LAC hampers
the effective resolution of large international banks in a timely
manner, ultimately undermining financial stability. We examine the
role of regulators in the quest for coherence on LAC, explaining the
incentives they had and how they deployed their delegated compe-
tences at different levels to achieve coherent rules that ensure
financial stability. Theoretically, we combine insights from the pub-
lic administration and political economy literatures. Methodologi-
cally, we process trace the making of LAC rules on three
governance levels and in multiple policy venues.
1|INTRODUCTION
After the international financial crisis, a host of new financial regulations were adopted (Moschella and Tsingou
2013). One of the main and most recent areas of regulatory reform concerned the loss absorbing capacity (LAC) of
banks, that is to say, the ability of banks to withstand financial stress by imposing losses on creditors (bail-in), without
resorting to state-funded recapitalization (bail-out). This post-crisis reform followed the recognition that relying pre-
dominantly on more stringent capital requirements for banks (the core instruments of pre-crisis prudential regulation)
was insufficient and additional loss absorbing instruments were needed, especially for global systemically important
banks (G-SIBs).
1
New rules on LAC were adopted at the international, regional (European Union) and national levels,
raising the issue of how to secure regulatory coherence, defined as the consistency between the rules adopted at dif-
ferent governance levels and in a variety of policy venues.
1
A bank is deemed to be a global systemically important one if its collapse would severely impair the proper functioning of the global
financial system. The Financial Stability Board (FSB) has designated around 30 global banks as G-SIBs using methodology designed
by the Basel Committee on Banking Supervision (BCBS).
Received: 15 February 2018 Revised: 29 August 2018 Accepted: 1 September 2018
DOI: 10.1111/padm.12549
Public Administration. 2019;97:499–512. wileyonlinelibrary.com/journal/padm © 2018 John Wiley & Sons Ltd 499
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