Responses to global financial standards in emerging markets: Regulatory neoliberalism and the Basel II Capital Accord

This paper examines the diffusion of the Basel II Capital Accord into emerging markets (EMs). The literature on the diffusion of financial standards reinforces determinism: carefully derived standards such as those around financial liberalization are assumed to be applicable to all markets in an effort to promote stability and international harmonization. Attempts to use financial liberalization and macroprudential toolkits such as Basel II, however well intentioned, can increase rather than mitigate financial instability, due in part to unevenness in the adoption of financial standards. We analyse rich, action research data on the response of banks in 19 EMs in Asia, the Middle East, and Eastern Europe to the advent of Basel II. We find heterogeneous rather than universalistic responses, captured as four types of behavioural variations leading to differences in the intensity of diffusion: Reformist, Instigative, Disobliging and Cosmetic. The variations reflect regulatory neoliberalism. The typology contributes to our understanding of the interaction between bank behaviour, regulator stance and institutional context as determinants of the diffusion of global financial standards.