Structural-Informational Power in Finance: Signalling Games and the Politics of UK Banking Reform

Thursday, July 13, 2017
JWS - Room J10 (J355) (University of Glasgow)
Scott James , Kings College London
This paper aims to provide a better understanding of the strengths and limits of financial power in the policy process. It argues that existing structural power perspectives tend to downplay political and business agency: specifically, the countervailing influence of bureaucracy and intra-business divisions. To address this, I develop a structural-informational model which assumes that policy makers are dependent on business to supply scarce policy-relevant information. Given that firms have an incentive to exaggerate the detrimental impact of new regulations, a signalling game ensues in which policy makers try to assess the credibility of information signals. On the basis of the payoffs available to business and policy makers, I test hypotheses about when firms are likely to oppose new regulations and when policy makers are likely to acquiesce to their demands. The model is illustrated using the case study of UK banking reform between 2010 and 2013. The study identifies four distinct signalling strategies – minimalist, accomodationalist, defiance, and leverage – through which individual banks were able to exploit their structural-informational power to secure specific policy concessions. Importantly, however, the broad thrust of the bank 'ringfencing' reforms remained largely intact in the face of fierce industry lobbying. I argue that this was because policy makers were able to reduce information asymmetries with business through the use of institutional screening devices and by encouraging bureaucratic counter-signalling. The paper concludes by reflecting on the study’s implications for the conditional and strategic nature of financial power.
  • James, S. Structural-Informational Power in Finance CES.pdf (753.6 kB)