In today’s world of globalised finance, regulators even in the world’s smallest developing countries have to weigh up the international ramifications of their decisions. This website presents the results of a three-year research project examining the politics of bank regulation in developing countries, with a focus on Low and Lower-Middle Income Countries (LMICs). The project is led by Professors Emily Jones and Ngaire Woods (Blavatnik School of Government, University of Oxford), and Professor Thorsten Beck (Cass Business School, University of London) and funded by the UK's Economic and Social Research Council (ESRC) and Department for International Development (DFID). It brings together a team of researchers with expertise in political economy of banking regulation in eleven countries on three continents.
Banks dominate the financial sectors of LMICs and effective regulation is vital for financial stability and growth. Our project seeks to find out whether, and to what extent, government regulators are basing their decisions on international banking standards (Basel I, II, and III), and the reasons for this. LMICs have the least developed financial sectors and in many ways find themselves at the periphery of the global financial system. Because their banking sectors are small in comparison, these countries rarely figure in global policy debates about banking regulation, are scarcely mentioned in the boardrooms of global banks, and are the subject of few academic studies.
Our team of researchers has combined large-n quantitative analysis and in-depth case studies of eleven jurisdictions across Africa, Asia, and Latin America (Angola, Bolivia, Ethiopia, Ghana, Kenya, Nigeria, Pakistan, Rwanda, Tanzania, the WAEMU, and Vietnam), to obtain a better understanding of how regulators in LMICs navigate the world of global banking standards.
Even though international banking standards are not designed for LMICs, our research shows how financial interdependence provides powerful market and reputational incentives to adopt them. As a result, LMICs face strong incentives to adopt overly complex regulations that are a poor match for their level of economic and financial development. Our findings suggest that reforms are needed to ensure that the interests of LMICs are better reflected in international standards-setting institutions.
The key questions addressed in our research are:
- How are regulators in LMICs responding to international banking standards? To what extent are they adopting Basel I, II and III?
- How can we explain the cross-country variation that we see? What are the domestic and international factors influencing regulatory decisions?
- To what extent do regulators have room for manoeuvre? How much de facto flexibility do LMICs have when it comes to adopting global banking standards? How much do they need?
- What are the policy implications? Are reforms needed to international standard setting processes?