Understanding the Financial Stability Board: A Critical Juncture in Financial Regime Formation

In the wake of the 2007-2009 economic crisis, the world has seen a resurgent push for global financial governance. The international policy community is no stranger to movements for greater economic coordination. Traditionally, the Bretton Woods institutions, the G-20, and the Basel Committee on Banking Supervision have served as primary venues to facilitate such state-level cooperation. Now, policymakers and scholars alike focus attention on the Financial Stability Board (FSB), the newest body chartered to coordinate global financial regulation. While policymakers assess the Board’s potential impact in the short and long term, the scholarly community seeks to understand how the Board fits in with existing patterns of financial regime formation. These researchers promote competing frameworks to explain how structures for global governance develop. Such models fall into two main schools of thought: the power-based perspective and the institutionalist approach. While power-based theories suggest that relative power considerations drive policy outcomes, the institutionalist school demonstrates how a broader conception of the national interest can foster cooperation through institutions. In a February 2010 working paper, Nilima Gulrajani suggests that these two frameworks are not mutually exclusive. This research builds upon Gulrajani’s thinking by exploring the main components of these competing frameworks. A single-in depth case study of the FSB illustrates both how these frameworks interact in the same policy space and how their relative explanatory power has evolved over time. Although the power-based approach explains how changing power dynamics impact patterns of cooperation, the establishment of the FSB marks distinctive shift toward the institutionalist perspective as a more relevant model of regime development. Ultimately, this finding highlights a change in the underlying policy environment to one distinguished by a broader conception of the national interest. Yet the durability of this transition remains uncertain as memories of economic crisis fade.