Why are international standards not set? Explaining weak cases in shadow banking regulation

Abstract

Why are international regulatory standards not set? While most of the literature focuses on explaining positive cases of standard-setting where international rules are agreed upon, weak or negative cases remain prevalent and yet surprisingly under-explored. To explain these cases in the area of financial services, we integrate an inter-state explanation, which focuses on competition between major jurisdictions, with a transgovernmental explanation, which relates to conflict between different regulatory bodies at the international level. We also consider how these dimensions interact with financial industry lobbying. This allows us to construct a typology differentiating between distinct types of cases concerning international standard-setting: (1) absent standards, (2) non-agreed standards, (3) symbolic standards, and (4) agreed standards. The explanatory leverage of our approach is illustrated through a systematic structured focused comparison of four post-crisis cases related to shadow banking. The article generates novel insights into regulatory conflicts and the scope conditions for international agreement.