Pauly: Opening Financial Markets

Pauly, LW. Opening financial markets. Cornell University Press.

"Technological innovation, market deepening, and capital mobility are widely credited with linking formerly discrete markets so inextricably that a truly global financial marketplace has finally emerged. That marketplace, it is often said, now overwhelms the political forces that once clearly controlled it. National governments are seen to be fundamentally constrained" (1).

However, this may be quite simplistic. Look, for example, at a case where a company from one country attempts to buy assets in another company (a bank, or ports, for example). The reaction that is created is indicative of the continued importance of the political within this process. This text explores these issues.

"Through an examination of a key aspect of increasing international financial interdependence--the institutional interpenetration of banking markets in advanced capitalist countries--this book demonstrates that considerable distance remains between the vision of a truly global market and contemporary reality" (1-2).

The global village of finance is not something that evolves without constraint from the political process. In fact, the political process is instrumental in the creation of this global village. This book explores how that international community of financiers and financial institutions has been changing; how this group with relatively uniform interests has moved to decrease things like heterogeneity in regulatory frameworks and instruments. What is the process of policy convergence vis-a-vis banks in this era of globalization?

Another interrelated focus of this work is the banking sector. Banks are creatures of states, and thus contain a certain amount of institutional uniqueness in relation to the charge for which they were created. Banks are also unique institutions, as they represent a kind of nexus between the political power and the economic power that seem to butt heads in these debates about national autonomy and international financial deregulation.

A history of bank and finance regulation is glossed over nicely: "Among the countries examined in the following chapters, a tacit consensus emerged around regulatory norms that allowed enduring pressures of nationalism, competition, and integration to coexist in the banking sector. Comparable domestic regulatory policies converged toward an acceptance of market openness. They did so by extending the scope of nondiscriminatory treatment for foreign institutions operating in national markets and by rendering more equivalent the conditions of access across those markets. By the late 1980s effectively reciprocal developments created a normative base that helped sustain the institutional interpenetration of markets still structurally distinct. The character of those developments provided evidence that states remain the central actors in the real global village" (7).

"Although the United States, Japan, Canada, and Australia developed access policies within unique domestic structures, the convergence of policy toward more common standards of regulatory treatment suggests an overarching process of interstate communication. The four states did not simply set ground rules for foreign banks interested in operating inside controlled markets. They communicated expectations to one another, and through their actual practices began to create an intersubjective normative framework that helped stabilize their relations in this sector" (177-8).

"After three decades of policy development, the institutional interpenetration of national banking markets in the advanced industrial world is now well developed. Convergent domestic laws and practices are creating a basic normative foundation for necessary interstate coordination on market access issues. Increasingly accepted regulatory standards, embedded in unique domestic structures, are important elements in any evolving process through which competition in one sector of modern capitalism is broadened and equilibrated by the interaction of the states at its core" (184-5).