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The successful combination of these factors facilitated the emergence of a new set of debates within the transnational regulatory community concerning the appropriate role of macroprudential policies and the institutional design of the financial regulatory framework. And since members of this community act as the transmission belt to domestic policy-makers, the logical conclusion is that they have exerted significant influence on domestic regulatory reforms. This is not to say that ideational scholars deny cross-country differences in the take-up of macroprudential ideas.

However, these differences pertain to a later stage of the institutionalisation process and do not affect the conclusion that the act of delegating authority over financial system stability to independent regulatory agencies largely reflects the execution of a new technocratic consensus that relies on insulating experts from democratic politics Engelen et al. The arguments reviewed thus far contribute to explaining the delegation of macroprudential responsibilities to SRAs, but do not thoroughly cover the constellation of motivations that led policy-makers to create agencies with systemic responsibilities.

For an early articulation of the symbolic uses of politics, see Edelman Edelman, M. The symbolic politics explanation combines insights from both the functionalist and ideational explanations see Table 1. It shares the functionalist assumption that delegation is made in anticipation of benefits — the logic of consequences.

In contrast to the functionalist explanation, however, under the symbolic politics explanation, actors do not come to conceive of delegation as beneficial via strategic calculation, given predefined interests. As discussed above, in the recent literature on macroprudential regulation, the ideas with causal influence on the emergence and institutionalisation of macroprudential policy have largely been identified in the technical consensus developed among financial experts.

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Potential explanations for delegation. CSV Display Table. Instead, policy-makers delegated macroprudential responsibilities to third-party agencies also to signal to the public that the accountability void of the pre-crisis period — where no public agency had been in charge of preventing financial instability — is being filled. Indeed, independent agencies can act as scapegoats for unpopular choices for which elected politicans might otherwise be blamed Weaver Weaver, R. In contrast to this understanding, the symbolic politics rationale argues that policy-makers are not motivated by the desire to avoid responsibility for unpopular decisions, but instead that they seek to claim responsibility for their decisions.

In the case under investigation, as will be illustrated at greater length below, policy-makers created SRAs with the view of seeking claim for having filled the accountability gap that had led to the financial crisis. The period of analysis varies by jurisdiction depending on when the discussion on regulatory reform and financial stability oversight began. In the USA, the need for reform of financial supervision and regulation in order to be capable of addressing systemic risk had already been recognised by early That is to say, in line with the expectations that derive from the application of a functionalist lens, policy-makers in all three countries paid attention to the efficiency consequences associated with the creation of systemic risk agencies.

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This is illustrated in the debate on the role of the central bank in the new agencies as well as on the independence of the new authority. Indeed, although different views existed on the extent to which central banks should be assigned systemic responsibilities both within and across countries, 10 View all notes the involvement of central banks in maintaining financial stability was regarded as a means through which to lend credibility and overcome technical problems of macroprudential regulation.

For example, George Osborne Osborne, G. In the USA, the failure of the Lehman Brothers was a key trigger mechanism that led to a consensus that the existing financial supervisory arrangement had failed and reforming it was imperative for maintaining stability of the financial system. This consensus is visible from the discussion during HR Hrg. HR Hrg. Henry A. Waxman, US Representative for the state of California. View all notes After a number of Congressional hearings on the subject from October to mid, it became increasingly apparent to policy-makers that one of the main reasons for the failure was that no single authority had the responsibility to identify or the authority to address the build-up of systemic risks.

See the discussions in, for example, HR Hrg. This is a mess, and we have to clean it up. S Hrg. Timothy F. It is not fair to characterise it — although I understand the risk — that is some new bureaucracy we are imposing on top of the system.

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It is more like more accountability and clarity so people know where to go; you know where you go to when you see systemic failures. The same motivations are identified on the other side of the Atlantic. Although Darling and Osborne disagreed on the specific institutional design, both sides of the aisle recognised the need to assign responsibility for monitoring and responding to threats to financial stability.

HC Deb 8 July , vol. The need to close gaps in financial supervisory arrangements in a way that ensures accountability to the public was likewise articulated in the EU. As Hoban Hoban, M. For instance, institutional path dependence and the political realities of each of the jurisdictions contributed to shaping the design of the SRA. In the USA, a large part of the debate on the creation of a systemic risk regulator concerned the role of the Federal Reserve.

Indeed, after using its emergency powers for programmes that were unprecedented in size and scope, including the controversial usage of American International Group funding for employee retention bonuses, members of Congress became resistant to providing the Fed with additional powers also see Eichengreen Eichengreen, B. As early as February , Barney Frank summarised the change of tone in the political debate, when he said that there was a great deal of interest in how the Federal Reserve has used that authority, how much money has been deployed, what are the criteria, to what extent are taxpayers at of risk for losing money here.

It is an ongoing effort. I am not alone in my concerns about the Fed as a systemic regulator. There seems to be a universal distaste for the Fed in such a role on the Senate Banking Committee. Such a political reality would seem to make it less likely that the House would confer such new powers on the Fed either. Ultimately, the financial regulatory reform package took the least invasive approach to change.


Indeed, the FSOC was created to be the hub of macroprudential policy and would be held publically accountable for failures to maintain financial stability, but while the Fed was granted additional authority to regulate systemically important financial institutions, the fact that it is not the single accountable agency for financial stability provides the illusion that it has not been granted significant new authority, thus making the reforms palatable to a sceptical Congress and irate public.

In July , the Labour Government introduced a financial regulatory reform proposal that envisioned the creation of a Council for Financial Stability, to be chaired by the Chancellor of the Exchequer with membership of the FSA and the BoE. The change in government that occurred after the elections was indeed crucial to differentiating both the responsibilities and the powers of the SRA in the UK relative to the US and the EU counterparts.

The Labour party sought to defend the existing supervisory framework — known as the tripartite system — that had been established in by then Chancellor Gordon Brown. I believe that we should build on the strengths of the system that we have. The leadership of the Conservative party was not only trying to demonstrate the need to fill an accountability gap, but was also seeking to blame the Labour party for previous failings and convince the public that a more comprehensive reform was needed — indeed, they would later bring about this change see Cameron Cameron, D.

As with the case of the USA, there remained concern about investing so much power in the central bank. The crisis made it clear that the fragmented supervisory arrangement of the EU would be ineffective and detrimental to the future of the European financial system. Indeed, conflict between supranational and national supervisory responsibilities was influential on the design of the macroprudential policy framework by tilting the new framework towards the minimum shift of responsibility towards the supranational level, following an integration pattern that had become familiar since the entry into force of the Maastricht Treaty Bickerton et al.

Proportionality requires that any actions taken at the EU level are necessary to achieve the objective; and, as previously indicated, subsidiarity suggests that EU level actions must produce a superior result to actions that could be taken at the national level. In short, pre-crisis EU economic governance arrangements constrained the emergence of an SRA that would have concentrated too much power in any one EU institution.

This concern is also evident in the powers attributed to the ESRB. As one official who followed the deliberations in the Council and the EP 24 The ESRB legislation was adopted by co-decision, meaning that both the Council and the EP jointly adopt that is, co-decide legislation. View all notes put it, under the ESRB legislation, policymakers have not delegated so many powers, and have not delegated any binding powers at all!

The Council — but also the European Parliament — was clear that they were not ready to delegate new powers. The only true power is the power to collect data — the others are simply warnings and recommendations. The global financial crisis revealed critical gaps and weaknesses in the most advanced financial systems and their regulatory frameworks.

Numerous reports have been written discussing these weaknesses see, for example, Brunnermeier et al. View all notes In all three of the economies examined, governments and legislatures responded to these weaknesses by introducing legislation that significantly intervened in the structure and scope of domestic financial governance. One of the central elements of the legislative reforms, which were all signed into law between and , was the incorporation of a systemic approach to financial supervision into domestic governance arrangements via the creation of new regulatory agencies.

This paper has examined the creation of the FSOC, the ESRB and the FPC with the view of unveiling the factors that motivated elected policy-makers to delegate macroprudential responsibilities to technocratic regulatory agencies, exactly at the time when the crisis called into question the technocratic governance that had dominated before Rather than acting based on a technocratic consensus that advocated for increased and expanded powers for regulatory authorities, policy-makers were acting on the recognition of the importance of accountability in financial supervision.

Although the logic of symbolic politics helps illuminate some common trends in the rationale driving policy-makers in different jurisdictions, it is not without limitations. However, the argument cannot satisfactorily explain the differences in the design of the newly created SRAs. To this end, a more country-specific approach is required.

In particular, as the empirical analysis has begun sketching, the differences in the powers of the SRAs in the jurisdictions under examination reflect differences in domestic institutional structures and political realities. For instance, the fact that the ESRB has the least authority among the three SRAs here analysed being responsible only for issuing recommendations and warning which require significant cross-national, cross-institutional consensus to be made public can be traced back to the fragmentation between supranational and national supervisory structures that characterises the EU.

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