„This Is (Not) the End of the Road in Terms of Lobbying“: The Municipal Swap Market in the UK and US

In both, the UK and the US financial actors are widely understood as overwhelmingly powerful. Asserting financial market deregulation since the 1970s, the City of London and Wall Street have become the hubs of an increasingly financialized world with a swelling OTC derivatives activity as its main driver. However, despite finance's enormous structural power and intensive lobbying attempts by banks and money brokers in both countries, since the late 1980s regulations of the use of derivatives by local governments have fundamentally diverged. While US states followed the demands of finance, the UK central government did not and the market has been closed since 1991. Why do we observe different policy responses to the financialization of local governments? What explains the failure and success of finance power? Based on systematic archival work, the assessment of the daily and financial press as well as in-depth expert interviews, this study adopts the method of process tracing in a systematic comparison between a typical and deviant case. It analyzes the authorization of municipalities to use derivatives by US state law in the 1980s as a typical case of the power of finance and the failure to reach a similar regulatory regime at the same time in Britain as a deviant case of this causal model. The study reveals that the state’s monetary policy and fiscal concerns are crucial scope conditions for the power of finance to be effective because these concerns explain state’s willingness to sponsor demands of financial industry.