Regulators and the Quest for Coherence in Finance: The Case of Loss Absorbing Capacity for Banks

After the international financial crisis, new financial regulation was
adopted at the international, regional and national levels, raising
the issue of how to promote regulatory coherence, defined as the
consistency between the rules adopted at different governance
levels and in a variety of policy venues. A major recent area of
reform concerned the loss absorbing capacity (LAC) of banks. In
practice, the lack of regulatory coherence concerning LAC hampers
the effective resolution of large international banks in a timely
manner, ultimately undermining financial stability. We examine the
role of regulators in the quest for coherence on LAC, explaining the
incentives they had and how they deployed their delegated competences
at different levels to achieve coherent rules that ensure
financial stability. Theoretically, we combine insights from the public
administration and political economy literatures. Methodologically,
we process trace the making of LAC rules on three
governance levels and in multiple policy venues.