Regulating Risk : A study of Basel II and the Copernican turn to financial regulation

Abstract

The great financial crisis of 2007-2012 has brought the topic of financial regulation to the fore, both for policy makers and for social scientists. This thesis examined the Basel II framework for banking regulation, a framework generally acknowledged to have been extremely beneficial to especially the larger, international banks. The conventional answer to studies of Basel II is therefore to see it as a classic example of regulatory capture. This answer is sought nuanced in this study, which has a particular emphasis on the new ideas about financial risk management that came to be shared by both practitioners in the financial sector and their regulators. This study traced these new ideas from their academic origins, via their transformation into broader risk management practices in the sector, and to their influence on regulatory policy aimed at securing systemic stability. Once these ideas about risk were shared by regulators, the financial sector was able to use them strategically in their lobbying efforts, which in this case took a different form, as sector representatives gained access to policy making as “experts” on risk management rather than as a party with vested interests in the policy outcome. The initial sharing of ideas was therefore a prerequisite for the subsequent “capture”.