Structural Power and the Politics of Bank Capital Regulation in the United Kingdom
| Published date | 01 March 2017 |
| Author | Stephen Bell,Andrew Hindmoor |
| Date | 01 March 2017 |
| DOI | 10.1177/0032321716629479 |
| Subject Matter | Articles |
Political Studies
2017, Vol. 65(1) 103 –121
© The Author(s) 2016
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DOI: 10.1177/0032321716629479
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Structural Power and the
Politics of Bank Capital
Regulation in the United
Kingdom
Stephen Bell1 and Andrew Hindmoor2
Abstract
This article describes and explains a significant tightening in bank capital regulation in the United
Kingdom since the 2008 financial crisis. The banks fiercely resisted the new capital regulations but
in a novel theoretical contribution we argue that the structural power of business was reduced
due to the changing ideas of state leaders, by changing institutional arrangements within the state
and by wider open politicisation of banking reform.
Keywords
banking, structural power, ideas, institutions
Accepted: 10 December 2015
Introduction
This article analyses the battle over bank capital regulation in the aftermath of the 2008
banking crisis in a core financial market, the United Kingdom. Bank capital is share-
holder’s equity, a bank’s own reserves, as well as retained earnings. Banks with higher
ratios of capital to total assets are more likely to be able to withstand significant losses.
The banking industry has nevertheless traditionally opposed higher capital requirements,
arguing that higher capital levels increase costs, depress lending and weaken profits.
Capital regulation has, however, increasingly been tightened in the post-crisis era. We
argue that this substantially reflects changes in the structural power of banks and financial
institutions as well as increased state capacity. Three factors matter here: the changing
ideas of policy makers and their perception of structural power threats; enhanced state
capacity, including bureaucratic capacity and insulation in key regulatory agencies,
1School of Political Science and International Studies, University of Queensland, St Lucia, QLD, Australia
2Department of Politics, University of Sheffield, Sheffield, UK
Corresponding author:
Andrew Hindmoor, Department of Politics, University of Sheffield, Northumberland Road, Sheffield S10
2TN, UK.
Email: A.Hindmoor@sheffield.ac.uk
629479PSX0010.1177/0032321716629479Political StudiesHindmoor and Bell
research-article2016
Article
104 Political Studies 65 (1)
especially the Bank of England; and the wider ‘noisy’ politicisation (Culpepper, 2011) of
banking reform.
We identify three phases of capital regulation in the United Kingdom. Prior to 2008
and over a long period there was a significant winding down in capital levels in a major
risk shift from the banks to the state (Haldane and Alessandri, 2009). Post-crisis, amidst
intense bank lobbying, capital levels were increased, although in the view of some com-
mentators, only moderately, through the Basel III negotiations and the subsequent imple-
mentation of these rules via the European Union’s Capital Requirements Directive (CRD)
IV. Subsequently, the Bank of England’s Financial Policy Committee (FPC, 2013b) work-
ing alongside the Prudential Regulatory Authority (PRA) has, in its own words, taken a
‘conservative and comprehensive view of capital adequacy’ (p. 5) and significantly tight-
ened regulatory constraints to produce one of the world’s toughest standards on capital
adequacy, despite very substantial opposition from the UK financial industry. This article
seeks to highlight how and why such policy tightening has occurred, especially in terms
of arguments about the structural power of business, and associated arguments about
ideational change, state capacity and wider political change.
Our theoretical starting point in explaining these policy changes is Charles Lindblom’s
(1977) classic argument that ‘privileged’ business interests wield structural power by vir-
tue of their control over key economic resources and the investment and credit processes
on which governments and the wider society depend. Structural power can help explain the
government’s caution about capital regulation in the immediate aftermath of the 2008 cri-
sis. The banks, at that time, had some success in arguing that increasing capital levels
would inevitably result in lower lending and that this would jeopardise the recovery. But
how, in this case, can we account for the subsequent tightening in regulation? Our answer
is found in rejecting the assumption that structural power is a material reality which arises
automatically in capitalist societies. Against this, Stephen Bell (2012) has argued that
ideas, particularly the ideas held by state leaders, condition and mediate structural power.
We argue that structural power has been mediated and policy change facilitated through
the way in which expert state elites developed and deployed ideas in key political contests,
especially in challenging the banks’ arguments about capital and lending.
Our article also develops new theoretical insights about how structural power is shaped
and mediated by first arguing that the changing institutional context of state policy mak-
ers strengthened the banks’ hand and second by arguing that the noisy politicisation of
banking reform in the wake of the 2008 crisis also helped embolden policy makers.
The (Variable) Structural Power of Business
Lindblom (1977) argued that governments and the wider society depend on a strong econ-
omy and hence in a capitalist economy on the willingness of business to invest and pro-
duce. Governments are therefore dependent upon business and financiers and typically
have strong incentives to cater to their needs and demands.
This form of structural power is not automatic, however. As we argue, agents, espe-
cially within the state, mediate the relationship. For example, not all sectors of business
are necessarily privileged. Some sectors may lack resources or be economically weak, or
governments might perceive their growth as non-essential or even detrimental to overall
economic growth. In the case at hand, however, we argue that there is a strong prima facie
case for arguing that the banking industry possesses a strong measure of structural power
in the sense employed by Lindblom. First, banking and finance are a critical sector within
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