Trust But Verify: Domestic Politics and International Coordination in U.S. Post-Crisis Financial Regulatory Policy

Abstract

After the 2008 financial crisis, reforms to financial regulation in the United States developed with an apparent contradiction at their core: While those reforms embraced cooperative international measures, they simultaneously imposed more stringent safeguards on foreign banks opening on American soil. In short, they both ceded and guarded domestic control over U.S. financial regulatory policy. This Comment examines that contradiction from 2008 to 2010, including through Basel III negotiations and the Dodd–Frank Wall Street Reform and Consumer Protection Act, and attempts to explain the contradiction using an extended rational institutionalist account of international policy development. The domestic actors responsible for U.S. foreign financial policy held distinct preferences for financial reform; when one actor exerted greater control over an institutional locus of the reform process, that actor’s preferences dominated. The resulting legislation provides a clear demonstration of the explanatory power of domestic politics for international legal and policy outcomes — even in the absence of public attention. The views expressed in this article are the author’s alone and do not necessarily reflect the views of the Federal Reserve Board or the United States government.