Magee, Shane and Sheedy, Elizabeth A. and Wright, Sue, Reform Where It Is Least Needed: Diffusion of Post Crisis Risk Governance Regulation (June 19, 2014). Available at SSRN: http://ssrn.com/abstract=2456837

“Risk governance is arguably the most vital arena for post-crisis bank reform because it addresses the fundamental issues that drive the mismanagement of financial institutions. We assess the progress of reforms in bank risk governance in seven advanced economies and the EU five years after the Lehman Brothers failure and three years after the release of a ‘best practice’ benchmark in this field (BCBS, 2010). We find that the countries that have made the greatest progress in risk governance reform are not crisis countries and usually not those that host the largest global financial centres. Thus, reform tends to occur in the jurisdictions where it is least needed. We propose the ‘relative power hypothesis’ as the best explanation for this pattern of regulatory diffusion with some evidence to support the ‘consensus hypothesis’. Those countries where shareholder and manager power is strongest (Japan, Switzerland, UK, US,) are least able to implement fundamental reforms. The jurisdictions where depositor and taxpayer power is strongest (Australia, Canada, Singapore and EU ex-UK) have the most comprehensive risk governance regulation. The implications of the relative power hypothesis are not encouraging for achieving fundamental reform in banking or for the management of systemic risk.”