The Causes of the Divergent Development of Banking Regulation in the U.S., Canada, and Spain

Abstract

Why did different countries create different systems of banking regulation in the years leading up to the recent global financial crisis, despite adhering to the same transnational regulatory agreement, the 1988 Basel Capital Accord? Using over 5000 pages of archival material and in-depth interviews with regulators and industry participants, I answer this question by tracing the historical development of banking regulation (1780-2007) across three countries that were all parties to the Basel Capital Accord: the U.S., Canada, and Spain. The conventional wisdom is that banking regulation either follows universal principles of efficiency or reflects the power and interests of the regulated industry. I offer a very different explanation: that regulators from different countries adopted different policies because they subscribed to fundamentally different conceptions of economic order, which can be traced back many decades in each country.