The Soft Law Nature of Basel III and International Financial Regulations

Abstract

The global financial crisis (GFC) of 2007 to 2009 prompted international soft law institutions, such as the Financial Stability Board (FSB) and the Basel Committee on Banking Supervision (Basel Committee), to streamline the governance of internationally active banks by imposing upon them new capital requirements through Basel III which has both micro-prudential and macro-prudential aspects. Although Basel III is shaped by and embodies the response to the GFC of 2007 to 2009 by the Group of Twenty Finance Ministers and Central Bank Governors from the world’s 20 major economies (G20), Basel III does not have legally binding effect (as it was so devised)); but the G20 operates through transnational regulatory networks (TRNs) which comprise many international standard-setting bodies. This article explains and analyses why the pursuit of the common good in political economies by participants in TRNs, international financial regulations in general and Basel III in particular will facilitate greater convergence in supervisory practices and deepen cooperation between supervisory authorities.