Paradoxes and Failures: ‘New Governance’ Techniques and the Financial Crisis

Abstract

This article examines the performance of four 'new governance' techniques of regulation in the period leading up to the financial crisis: principles based regulation, risk based regulation, meta-regulation and enrolment.These techniques have been advocated on the basis that they are responsive, flexible, and in enrolling others in the regulatory project thereby expand its capacity, and even its legitimacy. However, experience in the crisis revealed that in their implementation they can be out of touch or indulgent, focus heavily on auditable systems and processes, and that in enrolling others they can increase vulnerabilities and the potential for negative endogenous effects.The argument is not that there should be a return to adversarial 'command and control' regulation, rather that experience of these strategies in the crisis suggests a need to understand in greater depth the refractive effects of the organisational, technical/functional and cognitive dimensions of regulatory governance, if we are to understand and adapt its performance in different contexts.

Transnational business governance interactions: Conceptualization and framework for analysis

“…Interactions also arise when firms must comply with multiple state and/or TBG standards, which together produce adverse outcomes. For example, banks in the EU must comply with both the IASB and the Basle Committee on Banking Supervision rules; in the 2008 financial crisis, this double requirement created a vicious cycle, significantly worsening outcomes (Black ). Such impacts also prompt interactions between regulators (in this case, the Basle Committee urged IASB to change its rules).…”

Political Pressures, Organizational Identity, and Attention to Tasks: Illustrations From Pre‐crisis Financial Regulation

“…The British FSA, as described below, faced persistent media and political pressure to increase its intervention in relation to financial firms' mistreatment of their customers. The empirical analysis of its response is based on studies by Black (, ), Gilad (, , ), and McPhilemy () on contemporaneous documents as well as post‐crisis reviews of FSA regulation. Employing this case to illustrate the model, I argue that in the absence of institutionalized prioritization of its multiple goals, social and political pressures, amplified by the FSA's identity as a world‐leading regulator, resulted in it focusing excessively on firms' mistreatment of customers to the detriment of prudential regulation.…”

“…Accordingly, the FSA was generally cautious not to appear heavy handed (p. 262). The effect of these political signals was reinforced by the FSA's faith in the self‐regulating capacity of wholesale financial markets (Financial Services Authority ; Black ; Froud et al ; Baker ). At the same time, the FSA faced intense media and political scrutiny in relation to financial firms' mistreatment of their retail customers.…”

The legal professions’ new handbooks: narratives, standards and values

“…189 The system treats standards as mandatory and enforceable independently of codes of conduct. One of the justifications of this approach is that it deprives regulated parties of opportunities for manipulation presented by more detailed rules.…”