How the U.S. Got It Wrong: Regulation of Asset Securitization in Comparative and Historical Perspective

• In Event: 279 - Section on Comparative-Historical Sociology Paper Session. Sociology of Finance in Comparative and Historical Perspectives

Abstract

I undertake a historical comparison of the development of a substantively important financial regulation, the regulation of asset securitization, in the U.S., Canada, and Spain, 1988-2006. Regulators from each country subscribed to the same international regulatory standards, but these standards were flexible and ambiguous, and domestic regulators interpreted and augmented them in different ways. To explain why domestic regulators made these divergent policy choices, I draw from over 4000 pages of archival material and 24 in-depth interviews to assess the causal influence of competing theories of comparative policy development. Although political and institutional accounts currently dominate the comparative policy literature, I find that a cultural account offers the best explanation of the policy outcomes. Regulators in each country subscribed to different logics of regulation, which implied different understandings of the causes of excessive bank risk-taking and the sources of economic growth and prosperity. The extent of correspondence between the logic of regulation and the characteristics of securitization informed regulators’ perceptions of bank involvement with this practice. These differences in perception explain why domestic regulators made the divergent policy choices that they did.

Author

• Kim Pernell-Gallagher, Harvard University