The auxiliary paradigm change and club-based governance model in global banking regulation
| Published date | 01 March 2023 |
| DOI | http://doi.org/10.1177/00207020231175682 |
| Author | Jaehwan Jung |
| Date | 01 March 2023 |
| Subject Matter | Scholarly Essays |
The auxiliary paradigm
change and club-based
governance model in global
banking regulation
Jaehwan Jung
Department of International Relations, University of Ulsan,
Ulsan, South Korea
Abstract
After the 2008 global financial crisis, the newly revised Basel III international regula-
tory framework for banks enhanced the macroprudential objective of addressing the
systemic risk inherent in financial markets. This revision of the Basel framework was
lauded as an example of a paradigm change from an efficient market consensus to a
macroprudential consensus in global banking regulation. However, this so-called Basel
consensus merely tweaked the market-friendly nature of the Basel II framework
rather than fundamentally overturning it due to the inadequacy of macroprudential
ideas as an alternative paradigm. This inadequacy could be largely attributed to the
manner in which global financial reforms were discussed and formulated. The club-
based model of financial regulation governance enabled financial technocrats,
informed by the precrisis paradigm, to maintain their privileged positions in the post-
crisis reform process. Consequently, postcrisis reform proposals were built upon the
existing paradigm, making the 2008 financial crisis a conservative rather than transfor-
mative event.
Keywords
Global banking regulation, basel accord, governance of financial regulation, 2008
global financial crisis, paradigm change
Corresponding author:
Jaehwan Jung, Department of International Relations, University of Ulsan, 93 Daehak-ro, Nam-gu, Ulsan,
44610, Republic of Korea.
Email: jaehwan@ulsan.ac.kr
Scholarly Essay
International Journal
2023, Vol. 78(1-2) 5–23
© The Author(s) 2023
Article reuse guidelines:
sagepub.com/journals-permissions
DOI: 10.1177/00207020231175682
journals.sagepub.com/home/ijx
Introduction
The 2008 global financial crisis was so catastrophic that most politicians and policy-
makers felt a sense of urgency to take action toward reforming financial regulations.
One of the salient features of financial reforms following the crisis was the increasing
influence of macroprudential ideas in global financial regulatory communities. In par-
ticular, the basel accord, the cornerstone of global banking regulation since the 1980s,
was revised by incorporating macroprudential measures into its framework.
Immediately after the crisis, the Financial Stability Forum (FSF) announced that it
sought to “strengthen the Basel II capital treatment of structured credit and securitiza-
tion activities”and “update the risk parameters and other provisions of the Basel II
framework.”
1
In November 2010, the Group of Twenty (G20) approved the revised
Basel framework, known as Basel III, which not only strengthened the microprudential
objective of Basel II by increasing the amount of capital that banks should hold but also
increased the “macroprudential focus”on addressing “system-wide risks, which can
build up across the banking sector, as well as the procyclical amplification of these
risks over time”by introducing counter-cyclical buffers and extra capital charges for
systemically important banks.
2
Following Peter A. Hall’s work,
3
the revision of the Basel Accord after the 2008
crisis was lauded as an example of changing the policy paradigm in global financial
regulation “from an efficient-markets consensus to a macroprudential consensus.”
4
However, the so-called Basel consensus “merely tweaked”the precrisis neo-liberal
framework rather than “overturning”it completely.
5
Indeed, there was a significant
gap between the lauded paradigm change indicated by the emergence of the macropru-
dential ideas and “the relatively conservative policy activity emerging from it.”
6
Some
scholars have argued that this gap was caused by a lack of concrete policy tools and the
political influence of large international banks. However, the adoption of a macropru-
dential approach was inadequate in terms of inducing a paradigm shift in banking reg-
ulation. Although macroprudential ideas moved the primary scale of analysis from the
micro level to the macro or system level, market efficiency theories and macropruden-
tial ideas share core assumptions as to what constitutes a financial market and how such
1. Financial Stability Forum, “Report of the Financial Stability Forum on enhancing market and institutional
resilience,”Basel, 2008, 7.
2. Basel Committee on Banking Supervision, “The Basel Committee’s response to the financial crisis:
Report to the G20,”Bank for International Settlements, Basel, 2010, 1.
3. Peter A. Hall, “Policy paradigms, social learning, and the state: The case of economic policymaking in
Britain,”Comparative Politics 25, no. 3 (1993): 275–296. Using Thomas Kuhn’s term, Hall provided an
analytical framework in which policy change was defined as a change in the policy paradigm.
4. Andrew Baker, “The gradual transformations? The incremental dynamics of macroprudential regulation,”
Regulation and Governance 7, no. 4 (2013): 417–434.
5. Eric Helleiner, The Status Quo Crisis: Global Financial Governance After the 2008 Financial Meltdown
(Oxford: Oxford University Press, 2014), 93.
6. Andrew Baker, “Macroprudential regimes and the politics of social purpose,”Review of International
Political Economy 25, no. 3 (2018): 293–316.
6International Journal 78(1-2)
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