Banking regulation after the Crisis: Clash or Convergence Between Basel approach and regional initiatives?

In this chapter, Professor Viljanen analyses the post-crisis banking regulations and attempts to provide an answer to the following questions: do the local initiatives signify a radical transition in global banking regulation capable of unsettling the neoliberal Basel approach? By mapping out the Basel landscape, Professor Viljanen describes the basic Basel II neoliberal regulatory strategy of not governing banks. Then he considers the post-crisis Basel reforms and charts the emerging post-crisis Basel regulatory strategies. The national and regional regulatory initiatives to supplement the Basel reforms are also discussed. The central argument of the paper is that the structural regulatory initiatives remain at the periphery. They push the riskiest banking activities away from institutions with access to government funding support but fail to fundamentally change the banking landscape. This implies – among other things - that even the structural regulation projects have not shed their neoliberal roots. The initiatives seem to be primarily there to keep the markets afloat while manipulating their peripheries. Overall, it is submitted that the Basel strategy is not exclusively and orthodoxly neoliberal but, rather, contains paternalist and interventionist tendencies which augment its neoliberal agenda with a tacit small-scale structural regulation project. Simultaneously, the structural regulation initiatives seem primarily designed to allow neoliberal banking to continue, but in a new institutional setting where some of its most pernicious potential effects and flagrant perverse consequences are contained to ensure that neoliberal global markets are not endangered. Indeed, The Basel Accords are focused on manipulating banks and market structures to contain their destructive tendencies and ensure the continued existence of the markets. Now, it is crucial to note that the same orientation very clearly underlies the local structural regulation initiatives. In this sense, the local structural initiatives fail to be distinctly non-neoliberal despite their explicit interventionism. The primary aim of the local initiatives is the same as in Basel: to keep the banking systems aloft, disrupt their ordinary operations as little as possible, while simultaneously manipulating the structures in order ensure their future viability. As a conclusion, it is argued that the Basel rules and the structural regulation initiatives converge upon a tortious neoliberal strategy which attempts to fix the shortcomings of a neoliberal strategy with somewhat unorthodox tools to keep the neoliberal regulatory framework afloat. Both reforms engage in a form of damage control neoliberalism by reregulating banking to allow it to remain as free and unconstrained as possible.