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Why does the United Kingdom (UK) have inconsistent preferences on financial regulation? the case of banking and capital markets

Research output: Contribution to journalArticle

Scott James, Lucia Quaglia

Original languageEnglish
Pages (from-to)177-200
Number of pages24
JournalJournal Of Public Policy
Volume39
Issue number1
Early online date4 Dec 2017
DOIs
Accepted/In press20 Oct 2017
E-pub ahead of print4 Dec 2017
PublishedMar 2019

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Abstract

What explains national preferences concerning international and regional financial regulation? This paper focuses on one of the main financial jurisdictions worldwide, the United Kingdom (UK). It is puzzling that since the crisis, this jurisdiction has pursued stringent harmonised regulation in certain areas (banking), but not others (capital markets). We explain this in terms of how the demands of powerful economic interests are mediated by the political process and regulatory institutions. In banking, there was strong political pressure to restore financial stability and regulatory institutions were significantly strengthened. This enabled UK regulators to resist industry lobbying and pursue more stringent harmonised rules at the international and European Union (EU) levels (‘trading up’). In the case of capital markets, by contrast, UK regulators lacked political support for tougher regulation and were institutionally much weaker. As a result, the industry was far more effective in shaping UK preferences aimed at protecting the sector’s competitiveness (‘trading down’).

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