BANKS UNCHAINED: THE POLITICAL ECONOMY OF BANK REGULATION IN THE UK 1945-2015
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Date
2017-04-21
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Johns Hopkins University
Abstract
This dissertation seeks to understand why banking regulation has not led to banking stability. In broader terms it looks at how the state tries to control the market and why this fails. Specifically this dissertation questions why the introduction of new forms of bank regulation in the UK in the 1970s started off recurring financial crises. It examines four case studies in UK bank regulation history from 1970 to 2010 and finds that: 1) Bank regulation operates in a cumulative cycle with bank activity, which can best be understood as Minsky’s financial cycle with a regulatory component; 2) The regulation itself is formed for political rather than economic reasons and represents compromises derived from divergent interests, ideas and institutional forms; 3) These compromises introduce perverse incentives to the financial system which allow banks to circumvent the regulation itself. This leads to a gradual widening of bank activity; 4) The state’s failure to control banking has led it to ape banking’s methods and substitute private (market-based) institutions of regulation for public (control-based) ones. This point follows Polanyi’s idea of double movement to understand how the state and market interact.
The result of this cycle is that over time as the scope of banking activity has widened, the state has been less able to control market behavior. Since finance is inherently unstable, this lack of control has resulted in financial instability. The financial-regulatory cycle can be summed up as the fact that banking regulation has political causes but market effects. These are not aligned. The cause of banking instability is therefore ultimately political.
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, Bank regulation, political economy, Britain, financial market management, Thatcher, Margaret, economic policy, Competition and Credit Control (C&CC), Bank of England, Blair, Tony, Brown, Gordon, Financial Crisis, secondary banking crisis, Barings, BCCI, JMB affair, financial-regulatory cycle, European financial integration