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Keeping governments out of politics: transnational securities markets, regulatory cooperation, and political legitimacy

Published online by Cambridge University Press:  26 October 2009

Geoffrey R. D. Underhill
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Extract

The emergence of transnational markets in securities issuance and trading is a dramatic development in the contemporary financial services sector with larger consequences for national policy-making. The liberalization of access to domestic securities exchanges, the progressive reduction of regulatory restrictions leading to product innovation such as derivatives trading, the growing involvement of transnational banks in securities dealing, and the elimination of capital controls have all combined to yield rapid change over the past fifteen years. The process is, however, relatively poorly researched. Folklore about the global markets abounds but much remains to be done to put the global integration of the markets into perspective and understand its complexity. Specifically, there has been a failure to analyse the consequences of the liberalization and transnationalization of financial markets for democratic political systems in an increasingly global market economy.

Type
Research Article
Information
Review of International Studies , Volume 21 , Issue 3 , July 1995 , pp. 251 - 278
Copyright
Copyright © British International Studies Association 1995

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References

1 See Geoffrey R. D.Underhill, ‘Conceptualising the Changing Global Order’, in Richard Stubbs and Underhill, Geoffrey R. D., Political Economy and the Changing Global Order (London, 1994), pp. 19Google Scholar, 29, 33.

2 The desegmentation of the financial services sector is an important trend, wherein the lines of demarcation between banking and securities activities have become considerably blurred. This trend is characterized by the twin processes of securitization of the banking industry (meaning the growth of negotiable credit instruments or ‘commercial paper’ in banking), and disintermediation (meaning the decline of the traditional role of banks as intermediaries between borrowers (bank clients) and lenders (bank depositors), a role replaced by ‘securitized’ debt instruments as referred to above). In this sense, many banking activities result in tradeable securities being produced, the decline of traditional loan portfolios, and the move of bank assets off-balance sheet. For details, see for example Bryant, Ralph C., International Financial Intermediation (Washington, DC, 1987)Google Scholar.

3 See Webb, Michael C., ‘International Economic Structures, Government Interests, and International Coordination of Macro-economic Adjustment Policies’, International Organization, vol. 45, 3 (1991), particularly the discussion on pp. 313–21CrossRefGoogle Scholar.

4 The problems of the French Socialist government in 1982–3 as it attempted to define distinctive policies in the wake of a substantial election victory are well-known. Capital flight was one of the principal problems which was encountered in this regard; Helleiner, Eric, ‘States and the Future of Global Finance’, Review of International Studies, vol. 18, 1 (1992), p. 34CrossRefGoogle Scholar.

5 Strange, Susan discusses this at length in Casino Capitalism (Oxford, 1986)Google Scholar; see also ‘Interpretations of a Decade’, in Tsoukalis, Loukas (ed.), The Political Economy of International Money (London, 1985), pp. 1–43Google Scholar.

6 See Eric Helleiner, ‘From Bretton Woods to Global Finance: A World Turned Upside Down’, in Stubbs and Underhill (eds.), Political Economy and the Changing Global Order, pp. 163–75; David T. Llewellyn, ‘The Role of International Banking’, in Tsoukalis (ed.), Political Economy, pp. 203–32; Marcello de Cecco discusses in detail the mechanisms of public control of capital movements and how they became undermined in the Bretton Woods order in ‘Origins of the Post-War Payments System’, Cambridge Journal of Economics, no. 3 (1979), pp. 49–61Google Scholar.

7 A term used by Wachtel, Howard in The Money Mandarins: The Making of a Supranational Economic Order (rev. edn., Armonk, NY, 1990)Google Scholar.

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9 See Frieden, Jeffry A., ‘Invested Interests: the Politics of National Economic Policies in a World of Global Finance’, International Organization, vol. 45, 4 (1991). On p. 428CrossRefGoogle Scholar he argues that capital mobility is still far from perfect, and on p. 429 he states: ‘Equity markets in particular appear to be far less integrated [than bonds or bank claims] …’

10 Underhill, G. R. D., ‘Markets beyond Politics? The State and the Internationalisation of Finance’, European Journal of Political Research, vol. 19 (1991), pp. 197–225CrossRefGoogle Scholar, and ‘Negotiating Financial Openness: The Uruguay Round and Trade in Financial Services’, in Cerny, Philip G. (ed.), Finance and World Politics: Markets, Regimes, and States in the Post-Hegemonic Era (Aldershot, 1993), pp. 114–51Google Scholar. The argument in these papers owes a considerable debt to Polanyi, Karl, The Great Transformation, (Boston, 1944)Google Scholar. See also Underhill, ‘Conceptualising the Changing Global Order’, in Stubbs and Underhill (eds.), Changing Global Order.

11 See Susan Hart, ‘National Policy and the Revolution in International Banking: the British Response 1977–1986’, unpublished PhD dissertation, London School of Economics and Political Science, August 1989.

12 See International Fund, Monetary, International Capital Markets, Part I: Exchange Rate Management and International Capital Flows (Washington, 1993), pp. 1–7Google Scholar.

13 It has been argued in a number of quarters that the emergence of international financial markets represents an important change in the structure of the global political economy. Susan Strange argued the importance of changes in the financial system in Casino Capitalism, and she has long argued that the monetary and financial order is the most important factor underpinning the nature of international economic interdependence. More recently, Eric Helleiner has argued the crucial nature of changes in the post-war financial system: see Helleiner, Eric Noel, States and the Reemergence of Global Finance: From Bretton Woods to the 1990s (Ithaca, 1994)Google Scholar. See also Goodman, John B. and Pauly, Louis W., ‘The New Politics of International Capital Mobility’, International Business and Trade Law Papers, no. 29 (Toronto, 1991)Google Scholar.

14 With regard to Europe these points were made clearly by Bliman, Marianne, Bruno, Catherine, and Cacheux, Jacques Le in, ‘L'Espace bancaire et financier européen’, Observations et Diagnostics Economiques (Revue de l'Observatoire Français des Conjonctures Economiques), 1993, pp. 198–201Google Scholar.

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16 See Webb, ‘International Economic Structures’, pp. 318–19, and discussion by Frieden, ‘Invested Interests’, pp. 427–33.

17 See articles by Llewellyn, and de Lattre, in Tsoukalis, (ed.), Political Economy, and chapter 6 of Susan Strange, International Monetary Relations (Oxford, 1976)Google Scholar.

18 Eric Helleiner, ‘When Finance was the Servant: International Capital Movements in the Bretton Woods Order’, in Cerny (ed.), Finance and World Politics, p. 39.

19 Michael C. Webb, ‘Understanding Patterns of Macroeconomic Policy Co-ordination in the Post-War Period’, in Stubbs and Underhill (eds.), Changing Global Order, p. 177.

20 On regulatory arbitrage specifically applied to financial regulation, see Cerny, ‘The Deregulation and Reregulation of Financial Markets in a More Open World’, in Cerny (ed.), Finance and World Politics, pp. 69–78. On the general phenomenon resulting from open finance, see discussion by Helleiner in the same volume, pp. 37–40.

21 Cerny, ‘The Deregulation and Reregulation of Financial Markets in a More Open World’, in Finance and World Politics-see section II.

22 Susan Hart, ‘National Policy and the Revolution’, and Paul Stonham, ‘Big Bang: Short- and Long-Term Effects in the UK’, in Big Bang un anno doppo: Esperienze estere e proposte per la riforma del mercati mobiliari italiani, Incontri di Rocca Salimbeni, Siena, 27/18 November 1987, pp. 7–23.

23 This point is corroborated by interviews with Paul Guy, Secretary General of IOSCO, Montreal, 10 December 1991; National Association of Securities Dealers, Washington DC, 1 October 1992; International Trade and Finance Research Group of the US General Accounting Office, 22 September 1992.

24 In London, for example, some 12 per cent of GDP was at stake in the early 1980s as the City contemplated reforms to the markets; see Hart, ‘National Policy and Revolution’, p. 223, p. 252.

25 Frieden, ‘Invested Interests’, pp. 433–42.

26 Frieden, ‘Invested Interests’, pp. 439–42.

27 For a complete study of the effects of capital mobility, see Roy E. Allen, Financial Crises and Recession in the Global Economy (Aldershot, forthcoming).

28 See Andrew Martin, ‘Labour, the Keynesian Welfare State, and the Changing International Political Economy’, in Stubbs and Underhill (eds.), Changing Global Order, also Jonathon Moses, ‘Abdication from National Policy Autonomy: What's Left to Leave?’, Politics and Society, vol. 22, 2 (June 1994), pp. 125–8. The French case referred to in note 4 is called to mind.

29 Howell, Michael and Cozzini, Angela, Games Without Frontiers: Global Equity Markets in the 1990s (New York, 1991), p. 25Google Scholar.

30 Howell and Cozzini, Games Without Frontiers, pp. 24–5.

31 For a good summary of trends towards transnationalization in banking and securities, see Toyoo Gyohten, ‘Global Financial Market: the Past, the Future, and Public Policy Questions’, in Edwards, Franklin R. and Patrick, Hugh T. (eds.), Regulating International Financial Markets: Issues and Policies (Dordrecht, 1992), pp. 13–20CrossRefGoogle Scholar; and William D. Coleman and Tony Porter, ‘Regulating International Banking and Securities’, in Stubbs and Underhill (eds.), Changing Global Order, pp. 191–4.

32 Coleman and Porter, ‘Regulating International Banking’, p. 192.

33 Estimate based on research by the US General Accounting Office, interview 22 September 1992.

34 See Moran, Michael, ‘Regulatory Change in German Financial Markets’, in Dyson, Kenneth (ed.), The Politics of German Regulation (Aldershot, 1992), pp. 137–57Google Scholar; Financial Times, Financial Regulation Report, paper on Finanzplatz Deutschland, February 1992.

35 See Underhill, ‘Negotiating Financial Openness’, especially the section entitled ‘The Argument’.

36 For a good and constantly updated summary of changes in the regulatory framework of financial markets, see Financial Times, Financial Regulation Report (FRR), monthly. For example, the July 1992 issue examines changes in the EU such as the agreement on the Capital Adequacy Directive and in-principle agreement on the Commission's Investment Services Directive, as well as changes in the US (Futures Reform Bill/banking reform), or the UK (the Bank of England and BCCI's collapse, proposed new governance structure at Lloyd's insurance market). Another useful source is International Securities Regulation Report, Buraf Publications, Washington.

37 Paul Guy (Secretary-General of IOSCO), ‘Regulatory Harmonization to Achieve Effective International Competition’, in Edwards and Patrick (eds.), Regulating International Financial Markets, p. 291.

38 For an analysis of the convergence process, see Moran, Michael, The Politics of the Financial Services Revolution (London, 1991), especially the arguments in the last chapter on pressures from the private sector for convergence, pp. 130–5CrossRefGoogle Scholar.

39 See By-Laws of the International Organisation of Securities Commissions, Washington, DC, September 1991Google Scholar, for details of IOSCO membership and other rules.

40 An exception was made for Canada for historical reasons, and both the Ontario and Quebec Securities Commissions have a vote.

41 Interview with Paul Guy.

42 Interview with Paul Guy.

43 IOSCO, Annual Report, 1992Google Scholar.

44 Paul Guy, ‘Regulatory Harmonization to Achieve’, p. 293.

45 IOSCO, By-Laws, September 1991Google Scholar.

46 Paul Guy, ‘Regulatory Harmonization’, p. 294.

47 IOSCO, Annual Report, 1992, p. 8Google Scholar, p. 18. There have been some rationalization and changes among working parties since 1989–1990.

48 Interviews with Paul Guy, other regulators. The Group of Thirty is a consultative organization consisting largely of business leaders and some notable policy-makers from the major western market economies. The group's work with respect to securities markets has largely been on clearing and settlement issues; see Group of Thirty, Clearance and Settlement Systems in the World's Securities Markets (London and New York, 1989)Google Scholar.

49 See, for example, the joint statement of the SEC, the Commodity Futures Trading Commission, and the British Securities and Investments Board concerning joint oversight of the derivatives markets: OTC Derivatives Oversight, Washington, DC, 15 March 1994Google Scholar.

50 See chapter 4, pp. 111–47 of Porter, Tony, States, Markets and Regimes in Global Finance (London, 1993), especially pp. 111–12CrossRefGoogle Scholar. As the article proceeds with the analysis of IOSCO's efforts with respect to capital adequacy and international equity offers, the central role of IOSCO will become increasingly clear. The entry of IOSCO into negotiations with the Basle Committee was a crucial step in this regard.

51 This perception is clearly emphasized in interviews with IOSCO officials and national securities regulators.

52 Extensive interview evidence corroborates this claim.

53 See Knight, Jeffrey, Mazey, Sonia, and Richardson, Jeremy, ‘Groups and the Process of European Integration: the Work of the Federation of Stock Exchanges of the European Community’, in Mazey, Sonia and Richardson, Jeremy (eds.), Lobbying in the European Community (Oxford, 1993), p. 167Google Scholar.

54 Knight et al., ‘Groups and Process’, pp. 166–7; p. 169.

55 See Moran, ‘Regulatory Change in German Financial Markets’, pp. 137–57.

56 See FRR, February 1992.

57 See Article 15 of the Investment Services Directive: ‘Council Directive no. 93/22/EEC of 10 May 1993 on Investment Services in the Securities Field’, in Official Journal of the European Communities (Legislation), L141, vol. 36, 11 June 1993Google Scholar.

58 See IOSCO, Working Party on International Equity Offers, International Equity Offers, September 1989. There are also various updates to be found in IOSCO annual conference proceedings, and a periodic document entitled International Equity Offers: Changes in Regulations since…, since June 1989Google Scholar, since April 1990, etc.

59 See IOSCO, Capital Adequacy Standards for Securities Firms, Report of the Technical Committee of the International Organisation of Securities Commissions, October 1989, and Financial Times, Financial Regulation Report, February 1992Google Scholar. Updated information is available in the IOSCO annual conference proceedings, particularly the report of the Technical Committee.

60 For a survey of the issues under consideration and an account of progress, see IOSCO, Annual Report, various years, and IOSCO, Documents of the XVI Annual Conference, Washington, DC, 23–26 September 1991Google Scholar, 2 vols., and earlier annual conference proceedings.

61 Interview with Paul Guy; there is also considerable evidence in the IOSCO documentation gathered under this research project.

62 Interview with Paul Guy.

63 Interview with Paul Guy. For a thorough discussion of the issues surrounding international equity offers, see IOSCO, Working Party in International Equity Offers, Internationa! Equity Offers, September 1989Google Scholar, and further updates on the issue in IOSCO annual reports and annual conference proceedings.

64 M International Equity Offers, September 1989, p. 7Google Scholar.

65 International Equity Offers, September 1989, p. 8Google Scholar. The following account of the international equity offers problem comes from pp. 7–13 of this report unless otherwise indicated.

66 It should be noted that the European Union, through its Admission Directive, has moved towards the mutual recognition of listing particulars and there is other legislation covering issuance prospectuses; International Equity Offers, September 1989, p. 20Google Scholar.

67 International Equity Offers, September 1989, p. 59Google Scholar.

68 International Equity Offers, September 1989, p. 60Google Scholar.

69 International Equity Offers, September 1989, pp. 60–61Google Scholar. The report went on to welcome, and defer to, the work of the Group of Thirty and the Federation Internationale des Bourses de Valeur (International Federation of Stock Exchanges) for their work in this regard.

70 See International Equity Offers, 1989, pp. 75–6Google Scholar.

71 See for example, IOSCO, International Equity Offers: Changes in Regulation since April 1991, September 1992Google Scholar.

72 Central bankers may point out that the banking system is inherently more sensitive, as far as prudential supervision is concerned, than the securities sector because consumer deposits of a wide range of social groups are tied into retail banking. The collapse of the banking system would have catastrophic consequences for the entire economy. As one central banker said to this author, ‘If a securities house collapses, who cares?’ This distinction is less and less significant, however: on the one hand, banking and securities are more and more intertwined due to regulatory changes and market innovation (disintermediation and securitisation); on the other, the savings of consumers are increasingly managed by institutional investors through pension funds and insurance companies, and these firms are heavily involved in securities markets. A severe market collapse would destroy the savings of a substantial portion of the working population.

73 These issues are discussed clearly in IOSCO, Capital Adequacy Standards for Securities Firms, Report of the Technical Committee, 1989, pp. 11–17Google Scholar.

74 Capital Adequacy Standards, p. 5.

75 US General Accounting Office, Challenges to Harmonising Capital Standards Remain, p. 28; p. 34; Confidential interviews, Washington, DC, September 1992Google Scholar.

76 Interview with Paul Guy.

77 European Communities, ‘Council Directive no. 93/6/EEC of 15 March 1993 on the capital adequacy of investment firms and credit institutions’, and ‘Council Directive no. 93/22/EEC of 10 May 1993 on Investment Services in the Securities Field’, both in Official Journal of the European Communities (Legislation), L141, vol. 36, 11 June 1993Google Scholar. The IOSCO/Basle Committee preliminary agreement on capital adequacy for securities firms was close to the proposed EU Capital Adequacy Directive (Financial Times, Financial Regulation Report, February 1992, p. 10)Google Scholar.

78 For an account of the Basle agreement on capital adequacy for international banks, see Kapstein, Ethan B., ‘Resolving the Regulator's Dilemma: International Co-ordination of Banking Regulations’, International Organization, vol. 43, 2 (1989), pp. 323–47CrossRefGoogle Scholar.

79 IOSCO, Capital Adequacy Standards ….

80 FRR, February 1992, pp. 8–10Google Scholar.

81 FRR, February 1992, p. 9Google Scholar.

82 FRR, February 1992, pp. 11–12Google Scholar.

83 Confidential interview, Washington, March 1994.

84 FRR, June 1992, p. 2Google Scholar.

85 FRR, July 1992, p. 2Google Scholar.

86 FRR, November 1992, pp. 8–9Google Scholar.

87 International Securities Regulation Report, vol. 5, 23 (November 3, 1992)Google Scholar.

88 See paper by Elroy Dimson and Paul Marsh, ‘The Debate on International Capital Requirements: Evidence on Equity Positions Risk for UK Securities Firms’, City Research Project, London Business School, February 1994. The portfolio approach argues that the SEC approach to capital adequacy is inefficient and outmoded.

89 FRR, November 1992, p. 8Google Scholar.

90 International Securities Regulation Report, vol. 5, 23 (November 3, 1992), pp. 8–9Google Scholar.

91 FRR, November 1992, p. 9Google Scholar.

92 Financial Times, 27 October 1992, p. 33Google Scholar.

93 FRR, November 1992, p. 9Google Scholar.

94 Interview sources, Washington, September 1992. The concern with investor protection is corroborated by the GAO report, pp. 51–2. However, it is not clear that the small investor is as important to the US markets as claimed; major investors often deal off-exchange, sidestepping regulations (interview sources; US General Accounting Office, Securities Markets: Challenges To Harmonising Capital Standards Remain, Report to Congressional Committees, GAO/GGD/-92–41, March 1992, pp. 28–9)Google Scholar, but investor protection is certainly a major concern of Congress.

95 International Securities Regulation Report, November 3, 1992, p. 8Google Scholar.

96 FRR, May 1993, pp. 2–7Google Scholar.

97 Confidential interviews, Washington, DC, September 1992.

98 SEC/SIB agreement, OTC Derivatives Oversight.

99 See Michael Moran, The Politics of the Financial Services Revolution.

100 Bruno de Maulde, ‘The Role of Practitioners and Self-Regulatory Organisations in the Regulation of Financial Services’, paper presented to Annual Conference of IOSCO, London, 25–29 October 1992.

101 Interview with officials of the NASDA, Washington, DC, 1 October 1992. In fact the more interventionist style of the SEC is relatively recent, dating from the early 1970s as the distinction between banks and securities houses involved in the Euromarkets began to break down (Interview evidence).

102 David S. Ruder (former SEC chairman), ‘The Role of Practitioners and Self-Regulatory Organisations in the Regulation of Financial Services’, paper presented to the Annual Conference of IOSCO, London, 25–29 October 1992, pp. 4–5.

103 This is very clear from IOSCO documentation, Annual Conference material, numerous interviews conducted in Washington, DC, with securities regulators, SROs, and firms (20 March-4 April and 20 September-4 October 1992), as well as an interview with Paul Guy, Secretary General of IOSCO.

104 This has been true of attempts to regulate the derivatives business of banks and securities houses and the consideration of the ‘portfolio approach’ to regulation of international securities markets in Europe and the US (confidential interviews, March 1994).

105 On the capture of securities regulators and delegation of their powers, especially in the US, see Moran, Michael, ‘Theories of Regulation and Changes in Regulation: The Case of Financial Markets’, Political Studies, vol 34, (1986), pp. 185–201CrossRefGoogle Scholar, particularly p. 200.

106 Smith, Adam, An Inquiry into the Nature and Causes of the Wealth of Nations, ed. Cannan, Edwin (New York, 1937), p. 250Google Scholar.

107 Interview with Paul Guy.

108 The other long-standing example is the French Commission des Operations de Bourse. See Cerny, Philip G., ‘The “Little Big Bang” in Paris: Financial Market Deregulation in a Dirigiste System’, European Journal of Political Research, vol. 17, 2 (1989), pp. 169–192Google Scholar.

109 See Susan Hart, ‘National Policy and the Revolution’, and Philip G. Cerny, ‘The “Little Big Bang” in Paris’.

110 See IOSCO, XVIIth Annual Conference, London, 25–29 October 1992, ‘The Role of Practitioners and Self-Regulatory Organisations in the Regulation of Financial Services’, papers by Sir Andrew Hugh-Smith (Chairman, London Stock Exchange), Bruno de Maulde (President, Conseil des Bourses de Valeurs, Paris), John Langton (Chief Executive and Secretary General, International Securities Markets Association), and David S. Ruder (Chairman, IOSCO Consultative Committee and former SEC chairman).

111 See Michael Moran, last chapter and passim, The Politics of the Financial Services Revolution.

112 Once again, the US Securities and Exchange Commission is a case in point. The Chairman of the SEC, Richard Breeden, was constantly before Congress in hearings on issues about the 1987 crash, money laundering, and so on. The SEC also presents an annual report to the joint houses of Congress. See United States, Securities and Exchange Commission, Annual Report, 1990Google Scholar.

113 As mentioned, the large majority of the membership consists of independent securities regulatory agencies (see above, section 2.b.). See also IOSCO, By-Laws of the International Organisation of Securities Commissions, Washington, DC, September 1991Google Scholar. For literature on policy communities, see Coleman, William D. and Skogstad, Grace (eds.), Policy Communities and Policy-Making in Canada (Toronto, 1990)Google Scholar, particularly preface, introduction, chapter 1 and conclusion (by Coleman and Skogstad).

114 Even securities regulators admit to difficulties understanding rapidly changing trends in the market. Only specialized market makers have the expertise required.

115 While there is a substantial literature on aspects of private interest government (for example, W. Streeck and P. Schmitter, Private Interest Government), there is essentially a void when it comes to exploring this concept in the international domain.

116 William D. Coleman, ‘Keeping the Shotgun behind the Door: governing the securities industry in Canada, the United Kingdom, and the United States’, in Hollingsworth, J. Rogers, Streeck, Wolfgang, and Schmitter, Philippe (eds.), Governing Capitalist Economies: Performance and Control of Economic Sectors (New York, 1994), pp. 244–69Google Scholar.

117 See Michael C. Webb, ‘International Economic Structures …’, pp. 313–21.

118 Cerny, Philip G., ‘The Infrastructure of the Infrastructure? Towards “Embedded Financial Orthodoxy” in the International Political Economy’, in Gills, Barry and Palen, Ronen (eds.), Transcending the State: The Neo-Structuralist Agenda in International Relations (Boulder, CO, 1994)Google Scholar.

119 William Coleman has raised this question of accountability with respect to the issue of monetary policy in a domestic political context: see Coleman, ‘Monetary Policy, the Bank of Canada, and Responsible Government: A Re-examination of the Issues’, paper presented to the Canadian Political Science Association, University of Victoria, Canada, 27–29 May 1990.

120 See Zysman, John, Governments, Markets, and Growth: Financial Systems and the Politics of Industrial Change (Oxford, 1983)Google Scholar.

121 Examples such as France, Japan, and more recently the NICs (Korea, Taiwan) come to mind.

122 Zysman, John, in Governments, Markets, and Growth (London, 1983)Google Scholar, argued the importance of the financial system and state control over investment in the process of successful economic adjustment.

123 Lindblom, Charles E., Politics and Markets (New York, 1977), p. 356Google Scholar. The point is that a more marketized economic order enhances the autonomy of the private corporation, in contrast to a system of greater state intervention and public management of economic choices.

124 Confidential interviews, 20 March-4 April 1992, Washington, DC; interview with Paul Guy, 10 December 1991. In the context of the European Single Market, large firms are expected to be the main beneficiaries of the market adjustment process; see Geoffrey Fitchew, Director-General of the Financial Institutions and Company Law (Commission of the European Communities), paper presented to the Centre for European Government Studies, University of Edinburgh, 15 January 1988, p. 10.

125 What Cerny refers to as the ‘competition state’; see Cerny, Philip G., The Changing Architecture of Politics: Structure, Agency, and the Future of the State (London, 1990)Google Scholar, chapter 8.

126 Susan Hart, ‘National Policy and the Revolution’, has argued that the City of London and the British Government only recognized the need for stricter, more rules-based supervision of the financial services sector when the traditional barriers between the segments of the industry began to break down. Prior to this, the self-regulatory system of the stock exchange and the ‘moral suasion’ of the Bank of England were considered sufficient.

127 See OECD, Banking and Monetary Policy (Paris, 1985)Google Scholar, and Prudential Supervision in Banking (Paris, 1987)Google Scholar.

128 It should be remembered that the segmented and tightly regulated financial services markets of the post-war period were set up largely as a response to the 1930s disaster, which was in no small way related to the interlinkages among financial sectors (banking and securities) in a domestic and international context.

129 OECD, ‘Prudential Supervision in Banking’, Financial Market Trends, November 1986, p. 22Google Scholar.