Why do countries implement Basel II? : an analysis of the global diffusion of Basel II implementation

• Main Author: Cho, Young
• Published: London School of Economics and Political Science (University of London) 2013
• Subjects: 332.1
• Online Access: http://ethos.bl.uk/OrderDetails.do?uin=uk.bl.ethos.579452

Like its predecessor, Basel II has profoundly shaped bank capital adequacy regimes across the world. However, there has been little systematic research on the state of Basel II implementation across developed and developing countries, and the factors that promote or hinder the implementation of these voluntary standards are particularly under-researched. By drawing on a new global dataset of Basel II implementation across 150 countries compiled by the author, this thesis evaluates the state of Basel II implementation at the global level and investigates why countries implement Basel II. Three novel channels of policy diffusion formed across supervisory authorities, global banks and financial sectors were specifically constructed to study the diffusion of Basel II policies using a mixed-method research design. A quantitative study tests the effects of policy diffusion on Basel II implementation across four distinct channels of diffusion formed by inter-supervisory authority networks, the cross-border structure of international banks, competition between financial sectors and the nexus of international economic exchange. This is complemented by in-depth case studies that unpack the causal process through which policy diffusion shaped the national implementation of Basel II in Chile, Hong Kong, Korea and Malaysia. I find that the state of Basel II implementation at the global level is highly uneven and clustered, and show that Basel II policy decisions in countries are highly interdependent on the policy decisions of other countries with which those countries are closely interconnected. Policy diffusion not only promotes the degree of convergence with Basel II, but also reinforces partial, gradual and delayed implementation. The diffusion of implementation policies can thus be a curse and a blessing for the future of Basel II and the broader global financial regulatory architecture due to its double-edged power to promote as well as hinder the degree of regulatory convergence with international financial standards.