The Puzzle

Abstract

This chapter sets out the puzzle at the heart of this book: why do governments in many developing countries choose to regulate their banks on the basis of international standards they did not design, and which are costly to implement? Country case studies across Africa, Asia, and Latin America provide compelling evidence of the reputational, competitive, and functional incentives generated by financial globalization that lead regulators to adopt international standards. The chapter summarizes the book’s core argument about the channels of regulatory interdependence between countries in the core and periphery of the global financial system, and the conditions under which we find that regulators to converge on, or diverge from, international banking standards.