Our research reveals how financial globalisation generates strong reputational and competitive incentives for developing countries to converge on international standards. Politicians, regulators and large banks in developing countries implement international standards to attract international investment, bolster their professional standing and further integrate their countries into global finance. Convergence is not inevitable or uniform; implementation is often contested and regulators adapt international standards to the local context. Our research shows how regulators and financial firms in the core of global finance powerfully shape regulatory decisions in the periphery, and the ways that governments and firms from peripheral developing countries manoeuvre within the constraints and opportunities created by financial globalisation.
- Basel II and III adoption in developing countries is widespread but selective. Financial regulators in LMICs vary widely regarding how many and which components of Basel standards they adopt and implement.
- Three key actors shape Basel standards adoption: regulators, politicians and domestic banks. Our research shows that global banks and international financial institutions such as the World Bank and IMF exert less direct pressure on domestic stakeholders than previously assumed, albeit with important exceptions.
- Each group of actors is drawn to Basel II and III for different reasons. For example, politicians may seek to attract foreign investors, regulators internalise global standards as best practices to safeguard against financial instability, and domestic banks seek reputational benefits to facilitate their expansion abroad. The orientation of stakeholders and the interrelations among them shape to what extent Basel standards are formally adopted and actually implemented.
- We distinguish different pathways of convergence or divergence according to the reason or the actor that predominantly drives the outcome. We also explain what might cause 'mock compliance', formal compliance which is not put into practice. The 11 case studies show how these pathways may help explain the particular patterns of (non-)compliance with the standards in different countries.