Institutional Heterogeneity and Financial Market Performance: Two Case Studies

• In Event: 265 - Regular Session. Economic Sociology: Regulatory and Local Responses to Financial Crisis: Discursive, Cultural and Social Structural Foundations

Abstract

Arguments for reforming finance and capitalism in general typically invoke regulation and antitrust as the decisive forces for controlling predatory corporations, protecting consumers, and upgrading markets. Such arguments take for granted the existing architectures of financial markets. Drawing on economic and organizational sociology, and two case studies from the history of American finance, this paper documents instead that market performance and the possibilities for regulatory reform depend as fundamentally on variation in financial market architectures, and the extent to which they incorporate institutional diversity, whether in the form of local, relationally based community banking or systems of cooperative, mutual and local state owned financial enterprise. These ecologies of alternatives can powerfully transform relationships and incentives within and between firms, introducing new options for personal and small business borrowers and new forms of competition into financial markets. And in so doing, they can alter the terrain for large for-profit financial institutions, providing regulators with leverage for reshaping markets, and creating infrastructure for local development and the growth of the middle classes.

Author

• Marc Schneiberg, Reed College