The Interest Ecology of Finance:

An Empirical Analysis

Kevin Young & Stefano PagliariUMass Amherst City University Londonkevinlyoung@polsci.umass.edu Stefano.Pagliari.1@city.ac.uk

Purpose of the Paper: Interest

Groups and Financial Regulation

Existing Literature

Focus on financial industry

Focus on selected policies, and institutional contexts

Qualitative methods, case study approaches

„Population ecology‟ approaches to interest groups (e.g. Gray & Lowery 1996)

Mobilization is conditioned by the environments in which interest groups find themselves and the interaction among different interest groups in the mobilization process

Take a comprehensive account of the entire population of interest groups, from 10,000 feet

What does financial

regulatory lobbying look like?

•H1: The more complex the financial regulation, the lower interest group plurality. Complexity

•H2: Interest group plurality increases during times when financial regulation is salient Issue Salience

•H3: The earlier in the policymaking process, the less plural the interest groups involved.Stage in the policymaking

•H4: Regulatory policymaking by legislatures is associated with more plurality than regulatory policymaking by bureaucracies. Policy venues

•H5: International regulatory policymaking will be associated with less plurality than national regulatory policymaking. International policymaking

• H0a: The predominant stakeholders in financial regulation are business groups

Business dominance

• H0b: Within the business community, the predominant stakeholders in financial regulation are business groups from the regulated industry.Regulatory Capture

How plural is financial regulatory lobbying?

What environmental factors affect interest group plurality?

Mapping the Interest Group

Ecology of Finance

Source: 13,189 comment letters in response to 291 different financial regulatory consultations

Institutional venues

National: US, UK, Canada, Germany, Switzerland, Australia

Regional: EU

International: Basel Committee, IOSCO, FSB

Period: 1999 to 2013

Coding Procedure

Mobilization: identity of groups who responds to regulatory consultations (sector and industry)

Preferences towards regulatory status quo

Business Dominance Hypothesis

H0a: The predominant stakeholders in financial regulation are business groups

Regulatory Capture Hypothesis

H0b: Within the business community, the predominant stakeholders in financial regulation are business groups from the regulated industry.

How systematically do different categories of

groups appear, under different environmental

conditions?

…multinomial logit (pr. of group occurring)

…linear regression (proportion of group in mix)

Cluster SE by policy consultation

Control for size of consultation

Matching where imbalance

Salience & the Financial Crisis

H2: Interest group plurality increases during times when financial regulation is salient

Stage in the Policymaking

Process

H3: The earlier in the policymaking process, the less plural the interest groups involved.

Technical Complexity

H1: The more complex the financial regulation, the lower interest group plurality.

Policy Venue: Legislative vs.

Bureaucracies

H4: Regulatory policymaking by legislatures is associated with more

plurality than regulatory policymaking by bureaucracies.

Governance Level (National

vs. International)

H5: International regulatory policymaking will be associated with less plurality than national regulatory

policymaking.

What do they want? Analyzing

groups preferences

Stratified random sample of 1271 response letter from 61 financial regulatory consultations

Coding: 3 point scale (Yackee and Yackee 2006)

Less stringency than the proposed regulation

Support for proposed regulation

More stringency than the proposed regulation

0.2

.4.6

.8

Rest of FinanceNon-Financial Businesses

Labour UnionsConsumer

ResearchNGOs

high/low mean

Solidarity with Regulated Financial Industry

.2.4

.6.8

1

Rest of FinanceNon-Financial Businesses

Labour UnionsConsumer

ResearchNGOs

high/low mean

Divergence with Regulated Financial Industry

Dissent with the financial

industry targeted for regulation

Conclusion

Find evidence against the “unified dominance” model of the financial industry (Porter and

McKeen-Edwards 2012)

Plurality is a function of different conditions

Technical complexity, salience make a difference,

but only for some groups and not others

„Level‟ of policymaking and venue matter; stage

does not.

The majority of „dissent‟ is likely to be found within

the business community, not outside it.