Elections and financial regulation
In this paper Saka et al. look at how the level of political accountability within and across countries shapes post-crisis financial policymaking. They use a novel panel dataset of 94 countries over the period from 1973 to 2015, a employ a quasi-difference-in-differences methodology and compare the level of financial liberalization between the two periods immediately before and after a financial crisis. They find that financial crises do indeed trigger a wave of regulation in financial markets.
But are the politicians motivated by public preferences or their personal interests? To answer this question the authors a simple two-stage model in which re-elections mitigate the ‘principal-agent’ problem and give incentive to politicians to seek public interests instead of short-term private gains. The main tenet of the model builds on the incumbent politician’s trade-off between currently available private rents and the present value of expected future rents in case of re-election. Their findings include:
- Policy interventions and re-regulation after financial crises are only common in democratic settings;
- Politicians who do not have re-election concerns are substantially more likely to intervene in financial markets after crises;
- Under the assumption that financial stability is a public good, term-limits obstruct its provision, rather than promoting it: term-limited leaders intervene in more controversial parts of the financial markets and not in those usually motivated by public interest.
Financial Policymaking after Crises: Public vs. Private Interests
Authors: Orkun Saka, Yuemei Ji, Paul De Grauwe
From: University of Sussex, University College London, London School of Economics
How politicians choose the agencies to implement new regulations
In this paper Moschella and Pinto look at why policymakers choose one (or more) agent(s) to perform new delegated policy functions? In order to understand the factors that drive the decision in favor of a single or a multiple agency governance framework, the authors investigate policymakers’ choice to delegate macroprudential regulatory responsibility since the aftermath of the 2008 crisis. They look at dataset in 53 countries that captures the two major governance models around which most countries have converged over the past decade, and find that the need of “policy controls” mainly drives the delegation choice. In particular:
- Political uncertainty increases the likelihood that policymakers opt for a single agency model: by allowing for more political control than under the multiple agencies model, the single agency model better serves uncertain policymakers who might want to use credit policies for electoral advantages;
- Granting macroprudential regulation to an already independent central bank would undermine policymakers’ quest for control over the single agent.
The Multi-Agencies Dilemma of Delegation: Why Do Policymakers Choose One or Multiple Agencies for Financial Regulation?
Authors: Manuela Moschella, Luca Pinto
From: Scuola Normale Superiore, University of Bologna
