Paper: Reform Where it is Least Needed:Diffusion of Post Crisis Risk Governance Regulation – byShane Magee,Elizabeth Sheedy, andSue Wright — Those countries where shareholder and manager power is strongest (Japan, Switzerland, UK,US,) are least able to implement fundamental reforms.
Abstract: Risk governance is arguably the most vital arena for post-crisis bank reform because it addresses thefundamental 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 LehmanBrothers 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 crisiscountries 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 bestexplanation for this pattern of regulatory diffusion with some evidence to support the ‘consensushypothesis’. 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 taxpayerpower is strongest (Australia, Canada, Singapore and EU ex-UK) have the most comprehensive riskgovernance regulation. The implications of the relative power hypothesis are not encouraging for achievingfundamental reform in banking or for the management of systemic risk.
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