Reform Where It Is Least Needed: Diffusion of Post Crisis Risk Governance Regulation

31 Pages Posted: 21 Jun 2014

See all articles by Shane Magee

Shane Magee

Macquarie University Department of Applied Finance and Actuarial Studies; Macquarie University, Macquarie Business School

Elizabeth A. Sheedy

Macquarie University Department of Applied Finance; Financial Research Network (FIRN); Macquarie University, Macquarie Business School

Sue Wright

University of Newcastle; UTS Business School; Financial Research Network (FIRN)

Date Written: June 19, 2014

Abstract

Risk governance is arguably the most vital arena for post-crisis bank reform because it addresses the fundamental issues that drive the mismanagement of financial institutions. We assess the progress of reforms in bank risk governance in seven advanced economies and the EU five years after the Lehman Brothers failure and three years after the release of a ‘best practice’ benchmark in this field (BCBS, 2010). We find that the countries that have made the greatest progress in risk governance reform are not crisis countries and usually not those that host the largest global financial centres. Thus, reform tends to occur in the jurisdictions where it is least needed. We propose the ‘relative power hypothesis’ as the best explanation for this pattern of regulatory diffusion with some evidence to support the ‘consensus hypothesis’. Those countries where shareholder and manager power is strongest (Japan, Switzerland, UK, US,) are least able to implement fundamental reforms. The jurisdictions where depositor and taxpayer power is strongest (Australia, Canada, Singapore and EU ex-UK) have the most comprehensive risk governance regulation. The implications of the relative power hypothesis are not encouraging for achieving fundamental reform in banking or for the management of systemic risk.

Keywords: risk governance, international banking regulation, Basel Committee, jurisdictional competition, post-financial crisis reform

Suggested Citation

Magee, Shane and Sheedy, Elizabeth A. and Wright, Sue, Reform Where It Is Least Needed: Diffusion of Post Crisis Risk Governance Regulation (June 19, 2014). Available at SSRN: https://ssrn.com/abstract=2456837 or http://dx.doi.org/10.2139/ssrn.2456837

Shane Magee

Macquarie University Department of Applied Finance and Actuarial Studies ( email )

Room 732, Building E4A
Macquarie University
North Ryde, NSW, 2109
Australia
61-2-9850-9947 (Phone)

Macquarie University, Macquarie Business School ( email )

New South Wales 2109
Australia

Elizabeth A. Sheedy (Contact Author)

Macquarie University Department of Applied Finance ( email )

Room 739, 4 Eastern Road
Macquarie University
North Ryde, NSW 2109
Australia
61-2-9850 7755 (Phone)
61-2-9850 7281 (Fax)

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

Macquarie University, Macquarie Business School ( email )

New South Wales 2109
Australia

Sue Wright

University of Newcastle ( email )

University Drive
Callaghan, NSW 2308
Australia

UTS Business School ( email )

Sydney
Australia

Financial Research Network (FIRN) ( email )

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
205
Abstract Views
2,269
Rank
268,682
PlumX Metrics