The Political Economy of Financial Market Regulation
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The Political Economy of Financial Market Regulation

The Dynamics of Inclusion and Exclusion

Edited by Peter Mooslechner, Helene Schuberth and Beat Weber

This book focuses on recent financial market reforms, and their implications for social, economic and political exclusion. In particular it considers the hitherto under-researched question of whose interests govern the design of regulatory mechanisms and who influences the decision-making process. This process is set out as contested terrain, in which there are winners and losers, and in which there are inevitably circles of exclusion. The authors, comprising financial authority experts and academic specialists, expand the concept of exclusion beyond its typical social dimension to incorporate all actors, be they individuals or institutions not permitted to contribute to financial market regulation as a public good. As they point out, this may take the form of political, economic or indeed cultural exclusion. The book examines the conflicts that arise between various interests and how these are managed within the process of regulation.
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Chapter 8: Risks, Ratings and Regulation: Toward a Reorganization of Credit via Basel II?

Vanessa Redak


Vanessa Redak* 1. INTRODUCTION On 26 June 2004, the Group of Ten (G-10) finally agreed on the new capital accord commonly known as Basel II. Implementation of the new Basel accord can be expected – at least in the EU – in 2007 at the latest. This paper will analyze the political and economic consequences of Basel II with special attention to the relationship between regulatory authorities and financial market actors. Their role will be analyzed with regard to the process of shaping the accord and to the future implications of the accord for both groups of actors. The driving questions are whether the power or authority of either the industry or regulators will increase or decrease with Basel II, who was able to influence the accord manifestly, and which actors were left aside. Concerning the relationship between the industry and regulators with regard to Basel II, opposing views can be found: Whereas on the one hand a number of critical analyses highlight the significant influence of private industry actors (notably financial interest groups and banks), on the other hand several positions state that regulatory intervention by public authorities has never been so high as with Basel II. In the first step, the article will investigate the role of these agents based on the three pillars of Basel II. It can be shown that both regulators and industry actors were and will be able to increase their authority according to the specific pillar in question. Their interests * I would like to thank...

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