Explaining institutional change in global financial regulation

Abstract

What explains institutional change in global financial regulation? We propose a model in which institutional change in response to exogenous shocks such as financial crises and legitimacy concerns is moderated by an endogenous variable, institutionalisation. We test our model using a mixed methods design. Relying on a newly constructed quantitative indicator of institutionalisation, we analyse 16 global regulatory institutions from 1967 to 2017. We examine causal mechanisms in three case studies using a new distinction between informal, contract- and treaty-based institutions. Our results support the model. Lowly institutionalised and informal institutions, like the Basel Committee on Banking Supervision, experienced significant institutional change and formalisation, becoming contract-based institutions. Contract-based institutions with intermediate institutionalisation, such as the International Accounting Standards Board, underwent change but remained in their category. Treaty-based institutions with high institutionalisation, like the International Monetary Fund, largely resisted change. These findings address gaps and complement the literature on global finance by providing a systematic large-N analysis with a focus on institutional development. We also contribute to historical institutionalism by highlighting the interaction of exogenous and endogenous factors, and to the literature on institutional choice between formal and informal IOs.