Doubling Down on a Transatlantic Financial Regulatory Regime

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The Transatlantic Oarsmen Cooperative: Doubling Down on a Transatlantic Financial Regulatory Regime

Joselyn Muhleisen The Graduate Center, City University of New York

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THE TRANSATLANTIC OARSMEN COOPERATIVE: DOUBLING DOWN ON A TRANSATLANTIC FINANCIAL REGULATORY REGIME

JOSELYN MUHLEISEN

A dissertation submitted to the Graduate Faculty in Political Science in partial fulfillment of the requirements for the degree of Doctor of Philosophy, the City University of New York

2016

JOSELYN MUHLEISEN

This manuscript has been read and accepted for the Graduate Faculty in Political Science in satisfaction of the dissertation requirement for the degree of Doctor of Philosophy

Professor Ming Xia

Date Chair of Examining Committee

Professor Alyson Cole

Date Executive Officer

Professor Christa Altenstetter

Professor Stephanie Golob

Supervisory Committee

THE CITY UNIVERSITY OF NEW YORK

iii Table of Contents Glossary ...... x Chapter 1: Introduction ...... 1 Literature Review ...... 6 Theory ...... 13 Empirical and Theoretical Contributions ...... 21 Statement of the Argument ...... 24 Research Design and Chapter Plan ...... 24 Chapter 2: US Financial Regulatory Regime ...... 33 Identifying Regulation ...... 34 Before and After the Financial Crisis ...... 35 Financialization ...... 45 Financialization of the Economic Sphere ...... 49 Financialization Ideology ...... 53 Financialization of the Social Sphere ...... 58 Network Salience ...... 72 Relationship of Regulators to Industry ...... 76 Conclusions ...... 79 Chapter 3: EU Financial Regulatory Regime ...... 81 Before and After the Financial Crisis ...... 81 Financialization ...... 91 Financialization of the Economic Sphere ...... 92 Financialization of the Social Sphere ...... 99 Network Salience ...... 112 EU Policymaking ...... 115 Relationship of Regulators to Industry ...... 121 Conclusions ...... 124 Chapter 4: The International Financial Regulatory Regime and the Transatlantic Financial Regulatory Regime ...... 126 The Financial Crisis as a Critical Juncture in the International Regulatory Regime ..... 126 Transatlantic Cooperation ...... 133 Post-War Transatlantic Cooperation: From Supportive to Competitive ...... 134 EU and US: Divergent Regulatory Approaches ...... 138 Mid 1990s: Renewing Economic Cooperation ...... 140 Since 2008: Emergence of a Stronger Transatlantic Regulatory Regime ...... 142 Origins of Regulatory Cooperation ...... 142 Transatlantic Financial Regulatory Regime After the Financial Crisis ...... 149 Conclusions ...... 154 Chapter 5: The TTIP: Reorienting the Transatlantic Regulatory Regime ...... 156 Industry as a Part of Civil Society? ...... 159 Institutionalization of Industry as Civil Society ...... 172 Government Support for a Transatlantic Financial Regulatory Regime ...... 186 Transatlantic Trade and Investment Partnership ...... 190 Conclusions ...... 193 Chapter 6: Conclusions ...... 195 The Transatlantic Oarsmen Cooperative ...... 195 Broader Implications of the Oarsman State ...... 201

iv An Epilogue: Brexit ...... 205 Appendix 1 ...... 208 Appendix 2 ...... 210 Appendix 3 ...... 211 Appendix 4 ...... 212 Appendix 4 ...... 213 Appendix 5 ...... 214 Appendix 6 ...... 217 References ...... 226

v List of Figures Figure 1: Steering and Rowing Roles ...... 12 Figure 2: Transatlantic Regulatory Regime ...... 16 Figure 4: Pre-Crisis US Financial Regulatory Regime Map ...... 43 Figure 5: Post-Crisis US Financial Regulatory Regime Map ...... 44 Figure 6: Rentier Income Share and Non-Financial Sector Profit Share: US GDP 1960- 2000...... 51 Figure 7: Owners' Equity in Real Estate as a Percentage of Household Real Estate ...... 63 Figure 8: Pre-Crisis EU Financial Regulatory Regime ...... 83 Figure 9: Post-Crisis EU Financial Regulatory Regime Map ...... 89 Figure 10: Financial and Insurance Activities as a Percentage of EU Member State GDP, 2013...... 93 Figure 11: Financial and Insurance Activities as Percentage of EU Member State GDPs, 1995, 2009, 2013...... 94 Figure 12: EU Homeownership, 2013 ...... 100 Figure 13: Post-War Growth of Homeownership Percentage Share of Total Stock by Year ...... 102 Figure 14: EU Homeownership Percentages With and Without Mortgages, 2013 ...... 103 Figure 15: Typical Loan to Value Ratio for First-Time Euro Area House Buyer, 2007 104 Figure 16: US, EU Maximum Loan to Value Ratio, 2008 ...... 105 Figure 17: Gross Replacement Rate from Public and Private Pensions, 2013 ...... 109 Figure 18: EU-US WTO Dispute Settlement Complaints since 1995 ...... 137 Figure 19: Transatlantic Financial Regulatory Regime, 2006 ...... 150 Figure 20: Transatlantic Financial Regulatory Regime, 2007 ...... 151 Figure 21: Transatlantic Financial Regulatory Regime, 2015 ...... 151 Figure 22: Transatlantic Regulatory Regime by Sector, 2006 and 2015 ...... 164 Figure 23: Transatlantic Regulatory Regime Map, 2006 ...... 168 Figure 24: Transatlantic Financial Regulatory Regime Map, 2007 ...... 169 Figure 25: Transatlantic Financial Regulatory Regime Map, post 2007 ...... 170 Figure 26: Agenda Setting Consultations ...... 175 Figure 27: EU-US Public Consultation Results ...... 175 Figure 28: Responses to Public Consultation as Percentages, 2012 ...... 177 Figure 29: TTIP Stakeholder Presentations Coding ...... 181 Figure 30: TTIP Stakeholder Presentations, through March 2015 ...... 182 Figure 31: Oarsman State ...... 198

ABSTRACT

The Transatlantic Oarsmen Cooperative: Doubling Down on a Transatlantic Financial Regulatory Regime

Joselyn Muhleisen

Adviser: Professor Ming Xia

This project argues that, in the wake of the 2007-09 financial crisis, the United

States (US) and European Union (EU) are doubling down on finance-led domestic growth strategies and that this is their goal in constructing a transatlantic financial regulatory regime. The regime’s goal privileges the input of industry actors over other civil society actors. The construction of this regime is in response to pressure from emerging markets and to service domestic industry actors after the financial crisis. The regime is intended to allow the US and EU to maintain their dominance within the international financial regulatory regime and continue to enjoy finance-led growth. In the emergent transatlantic regulatory regime, there has been a new division of labor emerging between the state and civil society, best illustrated with a nautical analogy: civil society and industry are steering regulatory activity and the state is rowing by creating regulatory institutions to serve industry. I thus propose the term oarsman state to explain this division of labor and assert that the EU and US are operating a transatlantic oarsmen cooperative.

Empirically this project demonstrates that the financial crisis was a critical juncture that caused institutional and functional changes in the (i) EU, (ii) US, (iii)

vii international and (iv) transatlantic financial regulatory regimes. In order to address the first empirical dimension of institutional and functional change, the research method of process-tracing will be used to compare the regimes before and after the financial crisis.

The second goal of this project is to explain how the changes in the EU, US and international regimes triggered an escalation in the creation of the transatlantic financial regulatory regime. This project applies an analytic framework that combines top-down and bottom-up approaches to explaining regulatory and institutional change to address the second question regarding causation. The changes in the EU, US, and international financial regulatory regimes are analyzed as causal factors that contribute to the emergence of the transatlantic financial regulatory regime.

viii Acknowledgments

I owe a great deal of thanks to the faculty members of The Graduate Center Political Science Department for their instruction, encouragement, and mentorship. Notably, I owe an enormous debt to Professor Ming Xia for the steady guiding hand he has had over this dissertation. I am grateful for his willingness to tackle an interdisciplinary topic, his generous intellectual contributions, and his sound advice and editing. I am also grateful to Professor Christa Altenstetter, who introduced me to the field of regulatory policy and politics. Since the beginning of my time at The Graduate Center she has been a vital supporter of all my career endeavors. Professor Stephanie Golob has generously shared her expertise in trade and political economy. Her recommendations substantially improved the clarity of this project.

I am also indebted to the European Union Studies Center and The Graduate Center administration for having let me lead programming and projects that I am passionate about. My colleague, Dr. Merja Jutila, was an extraordinary resource and teammate. Dr. Edith Rivera, and Professors Joe Rollins and Merih Uctum were faithful allies.

The School of Public and International Affairs at Baruch College, my undergraduate alma mater, provided me unparalleled international teaching and research opportunities. I am grateful to Associate Dean Jerry Mitchell for his passion for BSPIA and mentorship, Professor Dan Williams for his friendship and guidance, Dean David Birdsell for his leadership and commitment to international affairs scholarship, and to Professor Iris Geva-May for her guidance, friendship and support of my work.

My friends at The Graduate Center were also paramount to my successful completion. Mike Miller, Aaron Shapiro, and Jonathan Keller provided their invaluable commentary and sharp insights in our parallel student listserv, and at Murray Bar and Sycamore. Some of the more important things I learned in the doctoral program I learned while talking with my fellow GC students.

My family has patiently accepted my graduate student status, supported me financially, and provided comic relief. Hoss and Dad, thanks for never accepting a grade of merely 100 or an A. It was your dogged insistence that I excel academically that allowed me to pursue this dream. I thank my sister Amanda for being my most important ally, friend, and conspirator. Keep living in cities that make great vacation destinations!

My husband Alex has been an unwavering supporter of my work, spurred my ambitions, and encouraged me to realize we have all the time in the world. Thank you for everything you do for me and all the things you have enabled me to do. None of my accomplishments would be worth anything without you to celebrate them with me.

I am happiest when I am in school, researching, studying, teaching, and learning. By finishing this dissertation, I hope I get to stay in school forever.

ix Glossary

AAPC American Automotive Policy Council ACEA European Automobile Manufacturers’ Association (Association des Constructeurs Européens d'Automobiles) AFL-CIO American Federation of Labor and Congress of Industrial Organizations AmChamEU American Chamber of Commerce to the EU ARM Adjustable rate mortgage BCBS Basel Committee on Banking Supervision CAP Common Agriculture Policy CDO Collateralized debt obligation CEBS Committee of European Banking Supervisors CEIOPS Committee of European Insurance and Occupational Pensions Supervisors CEO Chief Executive Officer CESR Committee of European Securities Regulators CFPB Consumer Financial Protection Bureau CFTC United States Commodities Futures Trading Commission CMO Collateralized mortgage obligation COREPER Committee of Permanent Representatives DG European Commission Directorate General DG Markt European Commission Internal Market and Services Directorate General DG Trade European Commission Directorate General for Trade EBA European Banking Authority ECOFIN Economic and Financial Affairs Council EEC European Economic Community EGTRRA Economic Growth and Tax Relief Reconciliation Act EIOPA European Insurance and Occupational Pensions Authority ESFS European System of Financial Supervision ESMA European Securities and Markets Authority ESRB European Systemic Risk Board ETUC European Trade Union Confederation EU European Union FDIC United States Federal Deposit Insurance Corporation FHA United States Federal Housing Authority FHFA United States Federal Housing Finance Agency FMRD EU-US Financial Markets Regulatory Dialogue FRB United States Federal Reserve Bank FSAP Financial Services Action Plan FSB Financial Stability Board FSOC Financial Stability Oversight Council FTT Financial Transaction Tax

x G7 Group of seven G20 Group of twenty GATT General Agreement on Trade and Tariffs GDP Gross domestic product GFCI Global Financial Centre Index HLWG EU-US High Level Working Group on Jobs and Growth HUD United States Department of Housing and Urban Development IMF International Monetary Fund IRA Individual retirement accounts ITAC United States Industry Trade Advisory Committees ISDS Investor-State Dispute Settlement LTV Loan to value MBS Mortgage-backed securities MNC Multinational corporation NATO North Atlantic Treaty Organization NCUA United States National Credit Union Administration NGO Nongovernmental organization NTA New Transatlantic Agenda OCC Office of the Comptroller of the Currency OECD Organisation for Economic Co-operation and Development OEEC Organisation of European Economic Cooperation PDO Protected Designation of Origin PGI Protected Geographical Indication PITAC United States Public Interest Trade Advisory Committee QMV Qualified Majority Vote RBS Royal Bank of Scotland SEC United States Securities and Exchange Commission SIFI Systemically Important Financial Institution SME Small and medium enterprise TABC Trans-Atlantic Business Council TABD TransAtlantic Business Dialogue TACD Transatlantic Consumer Dialogue TALD Transatlantic Labor Dialogue TARP Troubled Asset Relief Program TLD Transatlantic Legislators’ Dialogue TEC Transatlantic Economic Council TEP Transatlantic Economic Partnership TIPRG Transatlantic Intellectual Property Rights Working Group TSG Traditional Specialty Guaranteed TTIP Transatlantic Trade and Investment Partnership UK United Kingdom US United States USITC United States International Trade Commission USTR Office of the United States Trade Representative WTO World Trade Organization

xi Chapter 1: Introduction

“A clear lesson of history is that a sine qua non for sustained economic recovery following a financial crisis is a thoroughgoing repair of the financial system. The necessary steps are occurring now, but restoration of the financial system to full health will be a long, drawn out process.” Janet Yellen, Current Chair of the Federal Reserve, January 2009 (Yellen 2009:1)

“The crisis has also reminded us of the lessons of the technology bubble, Japan’s experience in the 1990s and of the US Great Depression – that finance-led growth is problematic. In retrospect, the fact that 40 per cent of American corporate profits in 2006 went to the financial sector, and the closely related outcome – a doubling of the share of income going to the top 1 per cent of the population – should have been signs something was amiss.” Lawrence Summers, Former Treasury Secretary and Former Director of the National Economic Council, October 2008 (Summers 2008)

“While the immediate causes of the crisis currently affecting the European Union are indeed financial and economic, they are also, on a more fundamental level, the product of a crisis of values and of the non-respect of the norms. […] The present crisis has shown the limits of individual action by nation states. […] We need more integration, and the corollary of more integration has to be more democracy. This European renewal must represent a leap in quality and enable Europe to rise to the challenges of the world today by giving it the tools it needs to react more effectively and to shape and control the future.” José Manuel Durão Barroso, Former President of the European Commission, September 2012 (Barroso 2012)

Policymakers in the United States (US) and European Union (EU) hastily declared that the financial crisis of 2007-9 would be a turning point in financial regulation, prompting tighter regulation and more oversight of the financial industry.

Using comparisons to other crises, policymakers announced that they had learned a lesson. The EU and US each created new legislation and regulatory agencies to regulate the financial services industry.1 At the same time, the international financial regulatory regime expanded its mandate to tackle the threat that failing financial institutions posed

1 EU is broadly used to mean the antecedent institutions that have evolved to now be part of the EU, including the European Economic Community and the European Community. For more information about the history of the EU, visit European Union, “The History of the European Union.” https://europa.eu/european-union/about-eu/history_en.

1 to global economic stability. American and European policymakers also reaffirmed that the immediate solution to the crisis was to restore the stability of the existing global financial system. They consulted industry actors for guidance on how to create this stability while maintaining finance-led growth strategies. The EU and the US have sought to shore up their dominance in the international financial regulatory regime by establishing new transatlantic institutions and expanding the role of existing ones to transform the transatlantic regulatory regime to serve industry actors.2

The financial crisis presented an opportunity to change the way financial regulation is created and whose interests it serves. The crisis of pro-market Anglo-

American capitalism led to domestic and global challengers to policies that promote financialization. However, despite these challengers to financialization the new regulations adopted by the US and EU still promoted finance-led growth strategies because of deep ideological capture. The EU and US are doubling down on their existing strategy in financial regulation: financial regulatory regimes are designed to encourage finance-led growth by creating regulation made in the interest of the regulated.

This work argues that while the EU and US continued to pursue finance-led growth in their domestic regulatory regimes the financial crisis marked a period of change that altered the existing transatlantic regulatory regime and the relationship of industry to the state within that regime. Pro-market, financialization ideology is shaping

EU and US policymaker preferences on financial regulation. This financialization ideology was a constant before and after the financial crisis. Policymakers in the US and

United Kingdom (UK) have expressed a preference for regulation that encourages

2 This analysis covers the time period up to and including 2015. The epilogue addresses developments after 2015.

2 finance-led growth. Policymaker preferences are also influencing the transatlantic regulatory regime, notably by privileging the input of industry. The international and domestic pressures that arose from the financial crisis incentivized the EU and US to continue to privilege and institutionalize the preferences of industry. These efforts to continue to compete globally with a finance-led growth strategy have culminated in the creation of a transatlantic financial regulatory regime.

The coordinated transatlantic response to the financial crisis is being driven by domestic pursuit of financial-led growth and compounded by external pressures from the international regulatory regime. Initially the financial crisis of 2007-9 disproportionately negatively affected the US and EU compared to emerging market economies. This posed a challenge to the leadership of the US and EU in the international financial regulatory regime and necessitated the creation of a transatlantic regulatory regime. In card games and casinos, gamblers have the opportunity at certain junctions in the game to stay with the original bets they have already placed or to increase their bets. Some gamblers use this opportunity to double their bets, and potential winnings, in an action called doubling down. Oxford dictionary describes the action of doubling down as, to

“[s]trengthen one’s commitment to a particular strategy or course of action, typically one that is potentially risky” (Oxford 2016a). The financial crisis of 2007-9 made it clear that finance-led growth is inherently risky to domestic economies and the global financial system. The US and EU have used the opportunity created by the financial crisis to double down on their finance-led growth strategies and have created new institutions to organize industry input and allow that input to directly influence the content of a transatlantic regulatory regime. Previously, the regulatory state directed the service

3 provision activities of civil society by providing regulation and regulatory agencies.

Transatlantic institution building is a new form of service provided to industry, which is a new paradigm in the relationship between state, industry and civil society in regulatory policymaking.

Background

The global economic and financial crisis that began in 2007 has spurred a realignment of financial oversight in the international political economy much like the

Asian financial crisis of 1997 did. However, unlike the Asian crisis, this crisis originated in the West and impacted advanced economies more than emerging market economies.

The EU, US, and international regulatory regimes had disparate reactions to the financial crisis. The crisis prompted a shift in participation in the International Monetary Fund

(IMF) and a reliance on a broader group of states for international financial regulation, including mandates for the Financial Stability Board (FSB). The expanded voice and vote granted to emerging market economies in the IMF and FSB accompanied new powers given to the IMF and FSB. This is significant because the IMF is responsible for determining the conditions of loans to states suffering during subsequent crises.

Increasing the participation of emerging market economies in the IMF and Group of 20 institutions is a significant development because global regulatory outcomes may be changed by their input. Other states do not pursue finance-led growth to the extent that the US and EU do, so it is likely that increased participation of emerging market economies in the international financial regulatory regime will lead to regulation less favorable to finance-led growth strategies.

4 In areas in which the US and the EU seek to promote a harmonized transatlantic regulatory regime, they dominate global governance (Drezner 2007; Ziegler 2012). Since the US and Western European nations have privileged positions and structural power in international institutions such as the IMF and Group of number formations (such as the

G7 and G20 groups), they are able to decide the rules of international regulatory regimes

(Woods 2010; Wade 2011). This governance is in policy areas as diverse as industry regulation, food labeling rules, transport, property rights, and sanctions. Though their agendas diverge occasionally, mostly in substantive areas in which they compete, their dominant positions in the international system and similar gross domestic product growth strategies encourage them to seek similar governance measures. The EU and US have traditionally agreed on structural power issues and sought similar arrangements in international institutions. In some issue areas they have different regulatory regimes and this leads to competition (Drezner 2007).3 The transatlantic relationship has a massive impact on global governance, particularly in influencing regulatory standards (Drezner

2007; Mattli and Woods 2009; Posner 2009). A harmonized transatlantic financial regulatory regime could define the contours of the international financial regulatory regime.

Examining the existing status of their cooperation in the international financial regulatory regime is especially important because of the series of international conflicts the EU and US have collectively sought to diffuse by working through international organizations. Many transatlantic and international institutions formed at the end of the

Second World War continue to be influential in both the security and economic spheres.

3 The World Trade Organization is an example of a forum in which this regulatory competition between the EU and US has taken place. This period will be addressed in Chapter 4.

5 Initially created to counter the communist threat, the North Atlantic Treaty Organization

(NATO) became the dominant regional security organization. Rather than disband following the dissolution of the Soviet Union, NATO transformed its raison d’etre to focus on out-of-area missions; the EU and US have effectively used NATO to address new global security governance challenges. The Bretton Woods Institutions, and notably the International Monetary Fund (IMF), were similarly used to pursue the agenda of neoliberalism in the 1980s and 1990s as part of the Washington Consensus. The IMF surveillance function has also undergone a transformation following the 2007-2009 financial crisis.

When the EU and US pursue a common policy or outcome, they often attempt to use international institutions or regimes in their pursuit. Transatlantic regulatory regimes are projected internationally.4 Existing institutions in the transatlantic financial regulatory regime have intensified their activities. As Chapter 4 will demonstrate, the TransAtlantic

Business Dialogue (TABD) and the Transatlantic Consumer Dialogue (TACD) have increased their activity. New institutions, such as the High Level Working Group on Jobs and Growth (HLWG) and the Transatlantic Trade and Investment Partnership (TTIP), have also been added to the transatlantic financial regulatory regime. A transatlantic financial regulatory regime is being created to be projected into the international financial regulatory regime.

Literature Review The transatlantic financial regulatory regime is the main subject of inquiry of both research questions in this work: (i) has there been a change in the transatlantic financial regulatory regime following the financial crisis of 2007-2009 and if so (ii) why.

4 One example detailed in Chapter 5 is the transatlantic intellectual property rights regime.

6 Transatlantic financial regulatory regimes lay at the intersection of three fields that are traditionally not mainstream political science: (i) international political economy of finance, (ii) transatlantic affairs, and (iii) regulatory public policy. This literature review will address the relevant literature in the three subfields, discuss the points of departure for this work, and identify the gaps in the literature that this project will fill.

The international political economy of finance literature is largely focused on the history of financial development and the power of individual nation states in setting financial regulation. Those works with an institutional focus have addressed the emergence of the Bretton Woods and contemporary monetary systems (Eichengreen

2006; Eichengreen 2008), the significance of embedded liberalism in shaping the role of the state and the policies of international economic institutions (Ruggie 1982; Keohane

1984), and how nation states use their power to create international institutions that then replicate their power (Dreyer and Schotter 1980; Strange 1986; Strange 1999; Leech

2002; Gilpin 2001; Smaghi 2004; Woods and Lombardi 2006; Perry and Nolke 2006;

Nolke and Perry 2008). The last stream of scholarship attempts to explain how institutions are created to preserve and reproduce power inequalities but the focus is firmly on structural power rather than the content of the regimes; this project will extend this stream of the literature to argue that the transatlantic regulatory regime is being created to preserve and reproduce the power inequalities created by financialization. The transatlantic financial regime is being built to stave off the challenges of emerging market economies and allow the US and EU to continue to be rule-makers in the international financial regulatory regime.

7 One gap in the international political economy of finance literature that this project fills is explaining the interactions between civil society and state actors in international regulatory regimes that include trade processes, that is, using the lens of a regulatory regime and applying regulatory state theory. Many authors have addressed the interaction of civil society and state actors in the negotiation of trade agreements and at the World Trade Organization (Scholte 1999; Robertson 2000; Dunoff 2000; Orellana

2009; Hopewell 2015). However, there has generally been a separation between regulatory literature and trade literature because traditional trade agreements have tackled tariffs and focused less on non-tariff barriers to trade. Overlap in the discipline exists in subjects like regional trading blocs, such as the European Union, and more work will fill the gap as new generation trade deals tackle mostly regulatory, non-tariff barriers to trade. This work studies interactions of civil society and the state using the lens of the regulatory state and sees trade agreements and regulatory cooperation councils as parts of a regulatory regime.

The second gap is reconciling the top-down and bottom-up dynamics of regulation. The international political economy literature has focused on either explaining how domestic institutions and interest groups shape international regulatory regimes

(Rogowski 1989; Lake 2009), or how international regimes impact domestic regimes.

Farrell and Newman (2014) have labeled an emerging body of scholarship that tries to reconcile these approaches by “ask[ing] how interdependence transforms the distribution of domestic interests and the institutions of the system’s units” as the “new interdependence approach” (334-335). According to Farrell and Newman, the authors of the new interdependence literature first:

8 “examine how domestic institutions affect the ability of political actors to construct the rules and norms governing interdependent relations and thus offer a source of asymmetric power. Second, they explore how interdependence alters domestic political institutions through processes of diffusion, transgovernmental coordination, and extraterritorial application and, in turn, how it changes the national institutions mediating internal debates on globalization. Third, they study the shifting boundaries of political contestation through which substate actors affect decision making in foreign jurisdictions. Hence, they challenge prevailing notions that interdependence, domestic institutions, or interest group distributions are static or exogenous” (332-333).

This project will continue in the tradition of this burgeoning literature and explain how the transatlantic financial regulatory regime is emerging because of both the US and

EU regulatory regimes and the changes to the international financial regulatory regime after the financial crisis.

The transatlantic affairs literature applies a foreign policy lens to transatlantic institutional cooperation by explaining institutional dynamics by focusing on the state of relations between the US and EU (Sola and Smith 2009; Peterson and Steffenson 2009).

Another stream of transatlantic affairs literature focuses on the paradigm of transatlantic economic competition and cooperation. Petersmann and Pollack (2003) and Damro

(2006) address the dynamic of regulatory competition in the EU-US relationship that led to disputes in the World Trade Organization (WTO).

Less attention has been paid to transatlantic relations in regulation; this literature also explores the dominant cooperation and competition paradigm. Evenett and Stern

(2011) provide a systematic review of transatlantic regulatory institutions and examine transatlantic competition and cooperation by policy sector but omit finance. They find that in some sectors increasing interdependence coupled with failed multilateralism motivate the US and EU to cooperate. According to Drezner (2007) the US and EU

9 decide whether to compete or cooperate with their respective regulatory standards depending on which standards other countries adopt. Posner (2009) argues that after the financial crisis regulatory centralization in the EU empowered the EU vis-à-vis the US and this was the major impetus behind a new round of transatlantic cooperation.

Fewer studies have focused on transatlantic cooperation in financial regulatory standards and its implications for other countries (Porter 2014b). Daniel Hamilton and

Joseph Quinlan (2005) argue that the economic integration between the EU and US is driving globalization and that this increases prospects for a deeper regulatory relationship between them. In testimony to the US Congress, Hamilton has asserted that transatlantic regulatory cooperation can “strengthen the ground rules of the international economic order” by setting standards preferable to the EU and US (Hamilton 2012, 8). However, overall, the literature fails to provide an account of the relationship between the transatlantic financial regulatory regime, the international financial regulatory regime and the broader international political economy. This project will fill this gap by identifying the dynamic of regulatory competition and changes in the international political economy after the financial crisis as drivers behind the establishment of a transatlantic financial regulatory regime.

The third field of public policy has also neglected regulatory policymaking and tended to focus instead on regulation as a part of implementation in public administration and public management studies (Bartle 2006, 1). Lowi (1964) identified regulatory policy as one of three types of policy, alongside distributive and redistributive and asserted that each type of policy has its own policymaking process characterized by a power arena. He later (1972) identified constituent policy as another type of policymaking. He describes

10 regulatory policy as being the “residue of the interplay of group conflict” (Lowi 1964,

692). Public policy scholars studying regulatory policy focused mostly on national contexts (Kelman 1980; Vogel 1986) until the European Union became a significant subject of inquiry (Majone 1994; Majone 1996). Reinicke (1998) argues that the outcomes of interaction between states, corporations, NGOs, regional and international organizations can be understood as global public policy. Stone (2008) has asserted that global public policy is made in a “global agora” and is delivered by “transnational policy communities” (1).

Since regulatory public policy mostly focuses on national contexts, scholars have largely analyzed the input of domestic interest groups to determine the role and composition of civil society. One stream of this scholarship considers the conflict among the groups and the winners and losers; the other stream is preoccupied with the access and influence of interest groups. Regulatory capture is a concept from the latter stream.

Bernstein (1955) identified regulatory capture as the way US independent agencies, removed from political control, make regulatory policy. In the broader global governance literature scholars have studied an emerging transnational civil society. (Florini 2000;

Price 2003; Nash 2008) Other scholars have focused on the role of business interests groups and trade associations in influencing global and transnational financial governance (Koppell 2006; Young 2012; Tsingou 2015). Young (2012) finds that there is not total regulatory capture at the transnational level at the Basel Committee on Banking

Supervision (BCBS). Tsingou has developed the concept of “transnational veto players” to describe lobby groups, firms, and regulatory authorities who block change in the

11 financial regulatory regime by “ideational bargaining on the feasible” (Tsingou 2015,

330).

The concept of the regulatory state came from public policy scholars analyzing the changing role of the state in relationship to civil society in the UK, EU and US

(Jordana and Levi-Faur 2004). Osborne and Gaebler (1992) initially explained that ideally the state authority would be responsible for steering by guiding and directing and that civil society would be responsible for service provision. Braithwaite calls this division of labor the regulatory state and distinguishes from the other divisions of labor between the state and civil society (Braithwaite 2000). The table below has been adapted from Jordana and Levi-Faur (2004) to identify the steering and rowing roles for the

Nightwatchman state, postwar or interventionist state, and the regulatory state.

Figure 1: Steering and Rowing Roles Type of State Nightwatchman State Postwar/Interventionist Regulatory State

State

Era 19th Century-1930s 1945-late 1970s Late 1970s-mid

1990s

Steering Civil Society State State

Rowing Civil Society State Civil Society

Source: Adapted from Jordana and Levi-Faur 2004.

This project will build on the regulatory state literature by identifying a new phase in the division of labor between the state and civil society that I call the oarsman state and by applying the concept to transatlantic regulatory policymaking. The public policy literature will benefit from an account of the transnational regulatory policymaking

12 institutions in a trade process because transnational regulatory policymaking is increasingly made through trade.

Regulation is an interdisciplinary topic, spanning economics, law, and political science (Bartle 2006). The prominent work on regulation in economics has set the terms of the conversation for the other disciplines and much of the terminology in regulatory studies was defined in economic terms. For example, in the previously mentioned division of labor between civil society and the state, industry and business are incorporated into the category of civil society. In political science, civil society is a distinct category from business or industry. However, this project includes business and industry in the category of civil society for the concept of the transatlantic oarsmen cooperative because the transatlantic regulatory regime is defining civil society to include them. The regime is operationalizing civil society to allow business and industry to be the dominant voices guiding the oarsmen cooperative’s activities.

Theory This project answers two major research questions: (i) was there a change in the transatlantic regulatory regime after the financial crisis and (ii) why or why not.

Answering the first empirical question, I use a critical junctures framework to analyze the structure and intensity of cooperation in the transatlantic regulatory regime before and after the financial crisis of 2007-2009. This project maps the transatlantic institutions, paying particular attention to those in financial regulatory governance, in snapshots before and after the crisis, and classifies the degree of cooperation in each institution as strong, moderate and weak by measuring two criteria: activity and institutionalization. To answer the second question, I propose an analytic framework that combines approaches from comparative politics theory and international relations theory to provide an account

13 of causation in regulatory cooperation. The framework employed explains that the multilevel nature of regulatory regimes creates competition between jurisdictions to create regulation that attracts people and businesses. As a result globalized, transient actors are often more empowered in the formulation of regulatory policies than domestic state actors.

Specifically, this project applies regime theory to state and international financial regulatory systems. Krasner defined regimes as, “principles, norms, rules, and decision- making procedures around which actor expectations converge in a given issue-area”

(1982, 185). Regime theory is an ideal approach to studying regulatory governance because of its diverse modes and mechanisms. There are many definitions and levels of abstractions for the concept of regulation. For example, Baldwin et al. (1998) and Jordana and Levi-Faur (2004) develop three layered meanings of regulation; at the most narrow definition as a “specific form of governance: a set of authoritative rules, often accompanied by some administrative agency, for monitoring and enforcing compliance”, in the second intermediate sense, “as governance in a general sense: the aggregate efforts by state agencies to steer the economy”, and in the broadest sense as “all mechanisms of social control” (Jordana and Levi Faur 2004, 3). The principles, norms and rules of regime theory are all potentially forms of regulation. Regime theory also asserts the importance of decision-making procedures to setting actor expectations. In this project, the focus on decision-making is essential to explain the interaction of actors in different levels of regulatory regimes. For example, the concept of a regime can be used to analyze how and why EU member states interact to create EU financial regulation. Finance is the

14 issue area of the four regulatory regimes discussed in this project; those are the EU, US, transatlantic, and international financial regulatory regimes.

The framework is primarily concerned with interaction between the regimes and two categories of actors: the state and civil society. At the domestic level, regulatory regimes are created by interaction between the state and civil society. The state includes all governmental actors and agencies. Civil society is defined, as it is by the EU and US, to include labor, consumers, industry and nongovernmental actors. However, the transatlantic regulatory regime has been structured with formal opportunities for categories of globalized civil society actors to directly influence the course of regulation and the development of the regime. This is distinct from other global regulatory regimes that are structured to formally accommodate only state actor input, in intergovernmental institutions like the World Trade Organization, or to negotiate differences between two domestic regulatory regimes, like a technical regulatory dialogue.

Figure 2 below maps the connections between the actors in the transatlantic regulatory regime. The category of global civil society overlaps with the categories of US civil society and EU civil society since some civil society actors operate both domestically and globally. Applying this framework to the empirical evidence of changes in the transatlantic financial regulatory regime reveals that civil society actors organizing at the transatlantic and global level are successfully influencing the shape of the regime.

Global civil society is driving the process towards a strong transatlantic financial regulatory regime rather than domestic civil society actors or state actors.5

5 This project deals with activity at the international, transnational or global, and domestic levels. International refers to interactions and institutions between national governmental actors or representatives. Transnational and global refers to phenomena extending or active across national boundaries. Domestic refers to phenomena within national boundaries.

15 Figure 2: Transatlantic Regulatory Regime

Source: Author generated.

This theoretical approach is designed to overcome deficiencies of two competing theoretical perspectives on regulatory cooperation dynamics: the top-down and bottom- up approaches. As noted in the literature review, the international political economy literature is only beginning to address the interdependence of multilevel regulatory regimes. Frieden, Lake and Broz have noted the disparity in the internationalist and domestic institutional approaches (2009, 6-9). This project considers the impact of both domestic regulatory regimes and civil society actors on the transatlantic regulatory regime and the impact of the transatlantic and international regulatory regimes and civil society actors on domestic regulatory regimes.

To determine why a transatlantic institutional response to financial regulation has emerged, I first address the US and EU domestic regulatory regimes. Comparing the US and EU domestic regulatory regimes before and after the financial crisis, I use a critical juncture framework to demonstrate that changes have occurred and identify the

16 underlying causes. In historical institutionalism a critical juncture represents an event or moment that acts as a catalyst to break with past institutional structures and prompt dramatic change (Pierson 2000; Pierson 2004; Capoccia and Kelemen 2007). The change can shift the trajectory of the institution, or its self-reinforcing path dependency.

Financial crises are often categorized as “critical focal points for public debates and policy makers’ interventions” (Battilossi and Reis 2010, 6). Recent work in economic history has reaffirmed that critical junctures are useful for determining causality in the path dependency of states (Acemoglu and Robinson 2012).

After presenting empirical evidence that changes have occurred in the regimes I will consider the actors, institutions and ideology contributing to those changes. Dahl has asserted that groups and individuals compete to influence policy outcomes in pluralism

(1961; 1978). While Dahl’s theory of pluralism is relevant, it cannot be used to completely account for the nature of the domestic regulatory regimes in the EU and US.

This project instead uses the theory of regulatory capture to explain the US and EU regulatory regimes. Regulatory capture is a claim that there is a distinct policymaking mode in which regulation is made in the interest of the regulated. Marvin Bernstein initially investigated seven independent US federal regulatory agencies and their susceptibility to private pressures in his 1955 work, Regulating Business by Independent

Commission. The agencies he analyzed regulated transportation, utilities, and industry practices; the Securities and Exchange Commission (SEC) was the only regulator of the financial services industry included in the project. His work considers the work of these agencies in light of their removal from political control and ambiguity about the extent of their power and connections to a legitimate democratic government (Bernstein 1955, 14-

17 15). He determined that agencies “tend to define the interest of the regulated groups as the public interest” (Bernstein 1955, 296).

Bernstein’s theory is used to explain the capture of regulators and legislators in the domestic EU and US contexts. The operationalized definition of regulatory capture used in this analysis is borrowed from legal scholar Lawrence Baxter who states,

“whenever a particular sector of the industry, subject to the regulatory regime, has acquired persistent influence disproportionate to the balance of interests envisaged when the regulatory system was established” (Baxter 2011, 176). This project addresses how civil society actors interact with and organize around the domestic regulatory regime in the area of financial regulation. Particular attention is paid to the ideology that makes financial industry actors considered part of civil society in the oarsmen cooperative and to the domestic narratives that governments and financial industry members rely on to increase the salience of the financial industry and manipulate the relationship of the regulated to the regulators (civil society to the state).

Most scholars have applied the concept of regulatory capture to domestic regulators who have international roles. Applying capture to trade, Bhagwati argues that domestic industries capture the United States and European Union and that they subsequently push for the inclusion of issues not related to trade in World Trade

Organization (WTO) rounds on behalf of those domestic industries (Bhagwati 2008). In legal scholarship, Margot Kaminski argues that the Office of the United States Trade

Representative (USTR) is particularly vulnerable to regulatory capture as it is exempt from legal constraints that apply to other regulatory policymakers and commits regulatory paraphrasing (Kaminski 2014). Condon and Sinha also argue that the USTR

18 effectively exported domestic regulatory capture to the WTO in intellectual property rights and that national capture becomes “de facto” capture when the state has a large influence in an international institution (2008, 168-169; 2013, 10). However, these are principally domestic applications concerned with how domestic capture occurs and how it is projected to the international level. This work will apply the concept of capture to a phenomenon occurring at the transatlantic level by connecting highly mobile multinational corporations (MNCS), their trade associations, and cross-sector organizations to the emergence of the transatlantic financial regulatory regime.

Ideological capture, or “deep capture” (Baxter 2011, 182), in the US and EU financial regulatory regimes puts industry in a privileged position to set the agenda of the transatlantic financial regulatory regime. This is distinct from the “shallow concept of visible capture” of individual regulations created in the interest of the regulated (Baxter

2011, 182). Policymakers in the US and EU are captured by the ideology of financialization and Anglo-American finance-led capitalism and prioritizing this above other policy options prompts them to consider the input of industry actors above other civil society actors.

As regulations are increasingly established in trade agreements and international technical dialogues, when extending the existing theoretical concepts from the domestic context to the global one it is imperative to understand who participates and exerts influence in regulatory regimes. Carpenter acknowledges that understanding the mechanisms through which capture occurs is one important line of inquiry (Carpenter and

Moss 2013, 68). This project assesses the access of different civil society and industry groups to the transatlantic regulatory regime by reviewing formal advisory institutions,

19 open consultations and stakeholder presentations. This project also maps the connections between the institutions in the transatlantic financial regulatory regime to demonstrate the centrality of different institutions in the policymaking process. These connections will demonstrate that industry is the predominant agenda-setter for the financial transatlantic regulatory regime.

The state contributions to the regulatory regimes are also considered, though in the case of the EU not all member states have equal influence over the financial regulatory regime. Multilevel intergovernmental theory is used to explain the decision- making of twenty-eight member states in the European Council. Putnam developed two- level game theory to explain how states formulate negotiation positions for international level agreements. Two-level game theory posits that domestic groups anticipating international level negotiation strategically alter their domestic negotiating positions to compensate for the later negotiation (Putnam 1988). Moravcsik (1991; 1993) built on this theory to explain how EU member states formulate domestic preferences and negotiation positions ahead of EU level negotiations. His theory of intergovernmental decision- making will be used to explain financial regulatory decisions taken by the European

Council that favor Anglo-American, finance-led capitalism. As a key veto player in the

European Council, the United Kingdom’s ideological capture is often replicated at the

EU level.

This project also assesses the role that the international regulatory regime has played in the emergence of the transatlantic regulatory regime. Network theory is used to explain that some states, and particularly the US and UK, have a disproportionate influence over the international financial regulatory regime because of the relative

20 strength of their regulatory systems and their domestic financial industries. One important consequence of this disproportionate influence is domestic and global industry actors are relatively empowered within the transatlantic regulatory regime. Network theory explains the connection between system position and influence; the more central the position of an actor in a system, the more influence the actor has over the content and operation of the system. Scholars have applied network theory to financial and regulatory activities.

Castells (2000) and Pike and Pollard (2010) have mapped financial flows to identify central nodes of significant activity. Strange (1998) and Sassen (2002) have asserted that these nodes are influential because they are hubs of activity within their broader networks. Drezner also discusses nodes of dominant regulatory activity (2007). He posits that regulatory influence is directly correlated to market size. According to Drezner the

EU and US are regulatory standard setters in finance because of their large developed markets. Network regulatory theory will be used to explain that the EU and US choose to cooperate and seek to adopt a common transatlantic approach in a transatlantic regulatory regime in part because of the alignment of UK-US financialization. The EU and US cooperate in creating a transatlantic financial regulatory regime partially because of the

UK dominance in the EU financial regulatory regime and because of the London-New

York nexus of financial services.

Empirical and Theoretical Contributions There are two major contributions of this project, one empirical and the other theoretical. Empirically, this project maps the differences in the transatlantic regulatory regime before and after the financial crisis. Evidence is presented to demonstrate that a period of institutional development and revitalization in the transatlantic regulatory regime followed the financial crisis; existing transatlantic

21 institutions took on new functions and adopted new goals. The EU-US High-Level

Working Group on Jobs and Growth (HLWG) was steered by industry input to recommend the launch of the Transatlantic Trade and Investment Partnership (TTIP) and include financial services in the agreement despite the existence of the Financial Markets

Regulatory Dialogue (FMRD). Civil society actors responded to and encouraged this process. In some cases, EU domestic civil society actors and US domestic civil society actors reorganized on the transatlantic level to respond to and influence the emerging transatlantic financial regulatory regime. The traditional theoretical approaches of international relations to explaining international institutions and regimes are state- centric. The major empirical finding of this project challenges these approaches: the financial industry is driving the shape and deciding the content of the transatlantic financial regulatory regime. Though the financial crisis could have reduced the salience of input from the financial industry, the EU and US have doubled-down on the ideology of financialization and have given the financial industry a guiding role in the regulatory regime.

The empirical evidence of changes in the transatlantic financial regulatory regime fills gaps in existing literature. First, transatlantic literature with a historical institutional dimension has been largely focused on developments in the defense relationship (Cogan

2001; Kagan 2002; Peterson and Steffenson 2009). Second, thus far scholars like Posner and Nolke have addressed developments in individual spheres of financial regulation

(securities in 2009 and accounting standards in 2010, respectively), but have not undertaken a comprehensive analysis of the evolution of EU-US cooperation in all spheres of financial regulation.

22 The theoretical contribution of this work is combining two seemingly disparate approaches to regulatory cooperation and institution building to explain a new role for the state. Specifically, this project proposes the oarsman state meaning that there is a new division of labor between the state and civil society, best illustrated with a nautical analogy: civil society is steering regulatory activity and the state is rowing by creating regulatory institutions to serve industry. Regulatory state theorists assert that the state is steering regulatory activity while civil society is rowing. In Reinventing Government

(1992), Osborne and Gaebler propose that the ideal division of responsibility between government and civil society is one in which government is steering, by guiding and directing activity, and civil society rowing, by doing entrepreneurial activities and traditional service provision. Braithwaite distinguishes this as the most recent form of the division of responsibility between civil society and the state, identifies the other divisions that preceded it, and associates the division with the contemporary regulatory state that emerged with neoliberalism in the 1980s (Ayres and Braithwaite 1992; Braithwaite and

Drahos 2000; Braithwaite 2000). In the 1980s and 1990s, many of the works developing the theory of the regulatory state emerged from studying the US and EU (Majone 1996;

Moran 2002).

This work proposes a new phase in the relationship between the state and civil society at the transatlantic level: in the oarsman state global civil society and industry actors are steering regulatory activity and the state is rowing by providing services and building institutions for civil society and industry. This claim is supported by examples of US and EU civil society and industry actors steering state provision of services at the transatlantic level. Rowing now encompasses not only

23 conventional service provision but also institution building. The state is creating regulatory institutions in the service of industry preferences.

Statement of the Argument This project argues that, in the wake of the 2007-09 financial crisis, the US and

EU are doubling down on finance-led domestic growth strategies and that this is their goal in constructing a transatlantic financial regulatory regime. The regime’s goal incorporates industry actors into the category of civil society and privileges the input of industry actors over other civil society actors. Financialization ideology underpins the convergence of EU and US regulatory approaches. The construction of this regime is in response to pressure from emerging markets and to service domestic industry actors after the financial crisis. The regime is intended to allow the US and EU to maintain their dominance within the international financial regulatory regime and continue to enjoy finance-led growth. In the emergent transatlantic regulatory regime, there is a new division of labor between the state and civil society, best illustrated with a nautical analogy: civil society is steering regulatory activity and the state is rowing by creating regulatory institutions to serve industry. I thus propose the term oarsman state to explain this division of labor and assert that the EU and US are operating a transatlantic oarsmen cooperative.

Research Design and Chapter Plan To demonstrate the changes in the transatlantic regulatory regime after the financial crisis, I use a critical junctures framework to analyze the structure and intensity of cooperation in the transatlantic regulatory regime before and after the financial crisis of 2007-2009.

24 This work uses the research method of process tracing to demonstrate that the

2007-2009 financial crisis was a critical juncture in the regulatory regimes of the EU and

US. It compares the policies, institutions, and ideology of the regulatory regimes before and after the financial crisis. The evidence presented makes it clear that the critical juncture has not delivered what policymakers initially presumed the outcome would be— domestic financial regulation made in the public interest—but rather the long-term outcome has been regulation made through deep regulatory capture of policymakers by global industry.

In order to determine if a critical juncture has occurred, first the antecedent conditions need to be addressed and later compared to the legacy of the critical juncture.

(Collier and Collier 1991; Pierson 2004) I address the history of financial regulation in the US in Chapter 2 and the history of financial regulation in the EU in Chapter 3 to establish the baseline of the antecedent conditions. I compare the policies, ideology, and institutional structures and procedures of the US and EU financial regulatory regimes before and after the financial crisis. The data I use are laws, directives, and regulations.

The data collection included official US government documents, EU Council and

Commission directives, and secondary source literature written about these developments. However, regulatory change manifests gradually. For example the Dodd-

Frank bill, a highlight of the US regulatory response to the crisis, was first passed in July

2010, but the public comment periods on certain provisions have extended well into 2015 and some rules, mandated under Dodd-Frank, have not been proposed yet. Until these provisions take effect, the shape of implementation is ambiguous.

25 By comparing maps of the regimes before and after the financial crisis, I demonstrate that the financial crisis was a critical juncture resulting in change in the policies and institutions of the regimes but that financialization ideology remained fairly constant. In the case of the EU, this also requires comparing the relative influence of different member state regulatory approaches in creating the EU financial regulatory regime and reviewing EU decision-making procedures. I use multi-level governance and network theory in order to explain the interaction of EU member states which creates the

EU regulatory regime.

Critical junctures theory also requires identifying the stability of core attributes which could provide alternate explanations for the legacy of the critical juncture. In

Chapters 2 and 3, I identify financialization ideology backed by pro-market, Anglo-

Saxon capitalism ideology as a stable core attribute and latent variable in both the US and

EU regulatory regimes. Financialization is commonly defined as an increasing reliance on profits from financial activities rather than profits from production-based activities, the latter activities comprising the ‘real economy.’ Financialization ideology is ideology which prioritizes finance-led economic growth over other forms of growth.

Financialization persists before, during, and after the financial crisis with few interruptions. I find that financialization ideology partially overwhelmed the presumed causal relationship6 between the financial crisis and regulation (that regulation would be more restrictive of the financial industry and made in the public interest) and led

6 Several policymakers (see Introduction and Chapters 2 and 3) in both the EU and US have suggested that the financial crisis is a “lesson learned” and that it would lead to fundamental reform in financial regulation. Although some EU and US regulations have become more restrictive and these are addressed in Chapters 2 and 3, the domestic level is just one level of financial regulations. The international and transatlantic levels give industry actors and policymakers an opportunity to impact domestic level regulations.

26 policymakers to support industry actors through domestic mechanisms such as bailouts, and seek to service industry actors and further the financialization strategy. Regulatory capture occurs.

In order to conduct both the longitudinal and case study comparisons, I need to define the scope of regimes and the scope of regulation. Using Krasner’s definition, regimes will be operationalized as rules, norms, principles, and decision making procedures that set actor expectations in the issue area of finance. In this project regulation will be defined as all activities undertaken by governance authorities to steer behavior.

Financial regulation does not consist merely of regulation of financial activity and products. Governance authorities formulate and implement financial regulation. The term governance authorities allows multilevel governance actors to be included in this analysis by incorporating national state agencies as well as transnational, transatlantic and international public and private governance organizations. This project will use

Keohane’s definition of governance: “Governance can be defined as the making and implementation of rules, and the exercise of power, within a given domain of activity.

‘Global governance’ refers to rule-making and power-exercise at a global scale, but not necessarily by entities authorized by general agreement to act. Global governance can be exercised by states, religious organizations, and business corporations, as well as by intergovernmental and nongovernmental organizations. Since there is no global government, global governance involves strategic interactions among entities that are not arranged in formal hierarchies” (Keohane 2003: 121).

27 While the economy is essential to understanding the substantive content of the regulation in this project, national government agencies have also attempted to steer individual behavior and interactions with finance to produce social good and not just economic outcomes, for example by encouraging people to buy a home in order to establish security or a sense of community. Financial regulation will be defined as all activities undertaken by governance authorities to steer behavior towards or interaction with financial activities, providers, and products. Because of the breadth of activities which govern not only financial activities but also how individuals and industry actors interact with financial activities and products a holistic examination of EU and US approaches to finance rather than regulation of finance is necessary.

The elements of EU and US regulatory regimes that are compared are policies, institutions, and ideology. I operationalize policies by looking at directives, rules, and actual laws and codifications of financial regulation. I operationalize institutions by identifying new institutions or institutions that have had change in their procedures. I operationalize ideology by surveying existing literature about historic attitudes towards finance, public speeches of national and European Union politicians during and after the financial crisis on the subject of finance, finance’s role in the national economy, and opinion polls. The predominant idea and phenomenon driving both the EU and US financial regulatory regimes is financialization ideology.

Financialization is a concept that has been developed to explain corporations’ increasing reliance on profits not from value added production but from investment or rentier activities. Financialization has also been used to explain governments relying on these strategies to grow gross domestic products (King and Levine 1993; Foster 2007;

28 Van der Zwan 2014). The later version of financialization is also described as finance-led growth. The degree of financialization is operationalized by measuring the contribution of the financial sector to gross domestic product in the EU member states and US. I use statistics collected by the Organisation for Economic Co-operation and Development

(OECD) and supplement them with official national statistics. This methodological approach to measuring financialization has been applied elsewhere in the financialization literature, notably in Epstein and Power (2003) and Nolke and Perry (2008).

Next, in Chapter 4 I consider the impact of the international financial regulatory regime on the emerging transatlantic financial regulatory regime. The financial crisis was a critical juncture that took place more or less simultaneously at the global level. Though it produced disparate responses, one external force on both the US and EU has been a challenge to the existing international financial order. During the crisis emerging market economies initially fared better than the US and EU and challenged the structural power and dominance of the US and EU member states in international financial institutions. I demonstrate the changes in the international financial regulatory regime that reduced the power of the US and EU. This challenge to the dominance of the US and EU in the international financial regulatory regime incentivized policymakers in the US and EU to establish a strong transatlantic regulatory regime to compete globally: they doubled-down on financialization. I will trace the development of the transatlantic institutions before and after the financial crisis to demonstrate this.

A primary contention of this project is that the role of the TransAtlantic Business

Dialogue, Transatlantic Consumer Dialogue, Transatlantic Labour Dialogue, and

Transatlantic Economic Council changed after the financial crisis and that the High Level

29 Working Group on Jobs and Growth (HLWG) and the TTIP were new institutions in the regime. In the 1990s the EU and US created new transatlantic groups for civil society and some were given an advisory status. After the New Transatlantic Agenda (NTA) subsided, some of these advisory groups fell into fallow. However, when the HLWG and then the TTIP negotiations were launched some of these civil society channels were revived. To assess the internal dynamic of the changes I categorize the two dimensions of function and institutionalization in the relevant transatlantic institutions as weak, moderate or strong in 2006, 2007 and again in 2015. For the dimension of function the activity of each institution is rated on an index with two factors: the frequency of meetings and the number of outcomes or deliverables. The degree of institutionalization is rated on an index with two factors: the number of staff and the number of members. I made the distinction between the weak, moderate and strong categories by comparing the institutional factors (such as number of staff, and frequency of meetings) to those of other international organizations. Appendix 5 contains a full accounting of my methods.

In Chapter 5 I identify the ongoing political and institutional processes that produce and reproduce the legacy of the critical juncture: the pursuit of a transatlantic financial regulatory regime and a fundamental change in the relationship between regulators and the regulated. I identify the regulatory authorities in the US and EU and at the transatlantic level, and the methods of access and input given to different stakeholders groups, such as consultations, hearings, and meetings.

At the transatlantic level I identify the transatlantic institutions, governmental and private, that cooperated on regulatory issues before the crisis and compare them with those that do so after the crisis. These institutions are then analyzed for the methods of

30 access and input open to stakeholders. In the case of the High Level Working Group on

Jobs, the data used are the agendas and list of stakeholder meetings, and responses to public consultations conducted in the EU and US. For the Transatlantic Trade and

Investment Partnership the data used are agendas and lists of stakeholder meetings conducted, transcripts of hearings before legislative bodies in the EU member states as well as in the European Parliament and the US, responses to public consultations conducted in the EU and US as well as the profiles of the members of the official advisory groups to the EU, US and to the Transatlantic Economic Council. The limitations to this data set are that not all meetings have transcripts which are publically available. Further, unlike the EU the US does not publish its negotiating position papers.

Another contention of this project is that the EU and US are privileging the input of one category of civil society in transatlantic institutions, namely, industry actors. To assess the external dynamic of the changes, I map the connections between the institutions in 2006, 2007 and in 2015. This mapping will categorize the institutions according to type and will chart the relationships between them. Revitalized and new interstate and industry institutions design the transatlantic regulatory regime. The industry institutions include the Trans-Atlantic Business Council (TABC) and the

Transatlantic Trade and Investment Partnership (TTIP) advisory groups.7 The interstate institutions include the TTIP regulatory chapters and the Transatlantic Economic Council

7 In 2013 the TransAtlantic Business Dialogue (TABD) merged with the European-American Business Council to become the Trans-Atlantic Business Council (TABC). Since 2013, the TABD refers to the executive council within the TABC and is composed of, “chief executive officers and C-Suite executives from leading American and European companies operating in the U.S., Europe, and globally” (TABC 2013).

In this work, TABD is used unless it is comparing the activity across after 2013 and then TABC/D is used to avoid confusion.

31 (TEC). These institutions provide service primarily to industry and enable the pursuit of a financialization-fueled growth strategy.

Finally, in the conclusion, I use the gathered evidence to propose the concept oarsman state to explain this new division of labor. The oarsman state is the emergence of a new stage of regulatory relationship in which the state serves civil society actors in the creation of regulation and institutions. I consider the potential impact of the transatlantic financial regulatory regime on the EU, US, and international financial regulatory regimes. The conclusions look broadly at the implications of this arrangement and mode of policymaking for other international regulatory regimes and for domestic actors.

32 Chapter 2: US Financial Regulatory Regime This project argues that the financial crisis was a critical juncture in the US, EU, transatlantic and international financial regulatory regimes, and that the changes to the

US, EU, and international regimes partially explain why the US and EU are changing the transatlantic regulatory regime. This chapter will use within-case process-tracing to compare the US financial regulatory regime before the financial crisis of 2007-2009 to the US financial regulatory regime after the financial crisis. Identifying the changes in policy, and institutional processes and structures will demonstrate that the financial crisis was a critical juncture in the US financial regulatory regime that centralized the regime’s institutions under the Financial Stability Oversight Council, added new surveillance and rule-making functions to existing institutions, and established the Consumer Financial

Protection Bureau and the Office of Financial Research. The underlying ideology of financialization did not change and the US financial regulatory regimes’ commitment to financialization is identified as an underlying cause of the emergence of the transatlantic financial regulatory regime.

The US changed its financial regulatory regime after the financial crisis, and the elements of its regime influence the transatlantic regulatory regime. The fragmented US system comparatively empowers industry, while financial regulation at the EU level increasingly originates from technocratic bodies with an abridged role for organized industry. Establishing the role of industry at the domestic level is important to later determining the role that industry has been afforded at the transatlantic level in the process of regulatory cooperation. The different roles for industry can be attributed to the development of two distinct models regarding the role of finance to the economy, the

33 Anglo-American market model and the German model, a difference in political salience for industry in the regulatory policy processes, and internal dynamics at the EU level.

Identifying Regulation Regulation is a concept fraught with political and social expectations and understandings as well as divergent meanings in subdisciplines of political science. Once constrained to explaining state limits on economic activity, regulatory policy studies have spilled over into the social sphere (Jordana and Levi-Faur 2004). Regulatory politics and policy scholars have conceived of three levels of definitions for regulation. The most narrow definition conceives of regulation as specific rules or standards set by the state; this is a limiting definition because much regulation seeks to encourage or incentivize certain behaviors rather than limit them. One such example is the variety of tax breaks related to home ownership. The second, broadest level covers all activity by a state. This work will use the term regulation in the sense of a middle level general concept: all actions undertaken by the government or other legitimized regulatory actors to prohibit, direct and incentivize the behavior of individuals and firms.

Another division over the concept of regulation is whether the regulation targets the demand or supply side. In the financialization section of this chapter, I address the way that federal taxation policy has incentivized individuals to use financial services.

Taxation policy is therefore one element of demand-side regulation. Demand-side regulation targets individual behavior. The field of behavioral economics considers how firms and government can encourage certain behavioral changes. Thaler and Sunstein identify a number of ways to make small changes to the “choice architecture” to “nudge” individual behavior towards a desirable outcome or decision; one pertinent example is the suggestion that employers should auto-enroll employees into 401(k)s and force them to

34 opt-out in order to ensure higher enrollment rates and higher retirement savings (Thaler and Sunstein 2009). The federal government regulation of the financial industry, through agencies, laws, and tax code, is part of supply-side regulation. Policymakers usually present supply-side regulation as the entirety of financial regulation.

Before and After the Financial Crisis The United States has created financial regulation incrementally and in response to crises, market failures, and shifts in productivity in the real economy (White 2009;

Farrell and Newman 2010). The financial crisis of 2007-2009 served as a critical juncture in US regulation but not one with the legacy many policymakers and pundits anticipated it would. The developments occurred in three categories of regulation, (i) policies, (ii) institutional structures and processes, and (iii) ideas. In this section I will detail the US financial regulatory regime before and after the financial crisis to demonstrate that the financial crisis was a critical juncture in the US financial regulatory regime. This is central to explaining why there has been a change in the transatlantic regulatory regime.

In the industrialization period (1790s-1910s), advances in technology contributed to a robust growth in US finance as a result of the connections between production and banking institutions. This was then followed by a period of reregulation and contraction

(1910s-1920s). States enacted Blue Sky Laws in the 1910s to regulate the nascent securities industry and protect incumbent interests (Battilossi and Reis 2010). However, the fragmented approach to regulation by states was not sufficient to stave off the stock market crash in 1929 and the Great Depression. Historical attitudes which had viewed financial activity as dangerous, swindling, gambling, or immoral and questions about the level of state intervention in markets were not completely set aside and contributed to a substantial wave of regulation during the Great Depression (Banner 2002; Busch 2008).

35 The stock market crash in 1929 and the subsequent Great Depression in the United States precipitated significant changes. The Securities Act of 1933 required the sale of instrumentalities (securities) across states to be registered with the government in an attempt to establish disclosure. In 1934 the Securities Exchange Act established the

Securities and Exchange Commission (SEC) to centrally regulate securities trading in stock exchanges and punish fraud (Sherman 2009). The Roosevelt administration closed banks temporarily in 1934 to fend off the permanent folding of banks (Busch 2008, 36).

The Glass-Steagall Act, which partitioned the sale of securities from traditional bank activities (deposits and loans), was a part of the Banking Act of 1933 (White 2009,

7) One of the most influential provisions of Glass-Steagall was Regulation Q. Regulation

Q put limits on the interest rates that banks could offer depositors but notably made an exception for institutions involved in mortgage lending. Mortgage lending institutions were given a quarter-percent advantage (Johnson and Kwak 2011, 35-37). This advantage, “was explicitly designed to encourage a flow of money into housing”

(Sherman 2009, 4). Even in a period of regulation in response to the Great Depression, the federal government sought to support financing in the social sphere rather than potentially alter American attitudes towards finance. Partially as a result of the new restrictions on financial activity following the Great Depression, advanced countries including the US were more financially developed in 1913 than they were until the 2000s

(Rajan and Zingales 2003).

In the 1970s and 1980s as the US encouraged deregulation in the global economy, the US Congress removed some of the existing regulations for finance. In 1978, the

Supreme Court decided in Marquette v. First of Oklahoma to allow banks “to export the

36 usury rate laws of their home state nationwide” (Sherman 2009, 1). As a result of the decision, states competed to have the least regulated usury rates in a race to the bottom.

In 1999 the Gramm-Leach-Bliley Act or Financial Services Modernization Act allowed commercial banks to engage in investment activities with deposits, deregulating a provision of the Glass-Steagall Act (Sanati 2009).

The federalist structure of US government, in which power is shared between the national and state governments, can create competitive regulatory regimes between states when the national government does not create national regulation. In regulatory competition, jurisdictions change their regulations to attract business, households, and industries. In Tiebout’s original model of regulatory competition, regulatory competition was meant to lead to optimal outcomes of preference aggregation, representing a race to the top since each jurisdiction would attract only the households that desired the mix of public goods and tax rates that it was offering (Tiebout 1956). However, a frequent criticism of this model is that devolution inspires competitive deregulation, or a race to the bottom, which allows industry actors to use regulatory arbitrage (Geradin and

McCahery 2005).

The trend of deregulation in finance ended sharply with the financial crisis in

2007-2009. The crisis prompted not only a change in social attitudes towards finance but also in the policies and institutions that regulate financial services.

At the forefront of the US response to the crisis was Secretary of the Treasury

Henry Paulson. His reaction to the crisis was to bring bankers together for deal making behind closed doors. In this way he sought to shore up the institutions facing ruin. After realizing that the crisis was threatening to ruin not only individual corporations but the

37 entire financial system he began to despair and consider more systematic action. Many accounts paint Paulson as the policy entrepreneur who engineered the banking bailout. In

Too Big to Fail, Andrew Ross Sorkin gives an account of how policymakers were moved to take action (2010). Secretary Paulson was moved when he appreciated that the financial crisis was “ ‘an economic 9/11’ ” (Sorkin 2010, 420). He realized that individual deals would not stave off the collapse of every financial institution and that an holistic solution was necessary. “ ‘Nothing is breaking our way,’ Paulson declared. ‘We can’t solve the problems of today; we need to think of tomorrow. We need to get ahead of this It’s deepening, moving too quickly. This is the financial equivalent of war, and we’re going to need wartime powers’ ” (Sorkin 2010, 421). Paulson was at the forefront of politically securitizing finance and calling for extraordinary, interventionist measures.

Chairman of the Federal Reserve Ben Bernanke shared Paulson’s analysis and “didn’t believe the crisis could be solved by individual deals or some one-off solution. ‘We can’t keep doing this,’ he insisted to Paulson. ‘Both because we at the Fed don’t have the necessary resources and for reasons of democratic legitimacy, it’s important that the

Congress come in and take control of the situation’ ” (Sorkin 2010, 431).

On September 18, Paulson and Bernanke met with two dozen congressmen in

Speaker of the House Nancy Pelosi’s office to convince the Congressional leadership that a politically unpopular bailout was necessary to avoid a dramatic economic collapse

(Dodd 2009). Bernanke appealed to them by referencing his research, “ ‘I spent my career as an academic studying great depressions. I can tell you from history that if we don’t act in a big way, you can expect another great depression, and this time it is going to be far, far worse’ ” (Sorkin 2010, 446). Bernanke and Paulson proposed a vague

38 version of the Troubled Asset Relief Program (TARP) in the Emergency Economic

Stabilization Act with a three-and-a-half page prospectus. Paulson followed up his presentation by noting, “ ‘If it doesn’t pass, then heaven help us all’ ” (Sorkin 2010, 446).

Senator Christopher Dodd’s account of the meeting echoes the imagery of an economic version of the devastation during the terrorist attacks of September 11, 2001: “It's the economic equivalent of 9/11 in my view, having been here for both events, ... sitting in that room with Hank Paulson saying to us, in very measured tones, no hyperbole, no excessive adjectives, that unless you act, the financial system of this country and the world will melt down in a matter of days. There was literally a pause in that room where the oxygen left” (Dodd 2009). Dodd spent three days expanding what he considered an

“insulting” three-and-a-half page bill into 80+ pages (Dodd 2009).

Opposition from Republicans to TARP led to immense frustration amongst the

Democratic leadership and Paulson literally took a bended knee in front of Speaker Pelosi begging her to keep TARP alive to a House vote. Bernanke and Paulson made a concerted effort to emphasize the potential catastrophic consequences if TARP was not enacted. After the initial bill was voted down on September 29, staff hustled to revise the bill and it was passed by the Congress and signed by President Bush on October 3.

Criticisms of TARP centered around the lack of conditions on the capital infusions. Two Democratic Senators and chairmen of relevant committees, Christopher

Dodd and Barney Frank, were particularly vocal in criticizing TARP and worked on legislation that would address reforms to the US financial regulatory regime. In 2010 the

US Congress passed the Dodd-Frank Wall Street Reform and Consumer Protection Act

(Dodd-Frank), to add protection against the series of regulatory failures that culminated

39 in the financial crisis. While the impact of the legislation is unclear as several provisions have yet to be implemented, it restructured the fragmented system of regulators and added new requirements for financial service providers.8 Dodd-Frank creates policy changes, but it also has implications for institutional structures and processes.

This chapter will not seek to describe all of the changes to the regulatory system but rather highlight the changes which represent significant breaks with the past, such as new legislation and the creation of new regulatory agencies. Critical junctures are not only about change, but also about continuity of systems. In the next section about the relationship of the regulators to the regulated, I will argue that there has been continuity because of the underlying narrative and ideas of financialization. Where possible, this chapter distinguishes between policy change and institutional structural or procedural change.

The first significant policy change was that commercial banks were banned from proprietary trading and investing in hedge funds and private equity funds with their own accounts. A solution proposed by the former United States Federal Reserve Chairman,

Paul Volcker, the Volcker Rule targets the speculative activity of banks that contributed directly to the financial crisis (Carney 2013). Proprietary trading allowed insured deposit banks to take excessive risks with deposits, so partitioning the activities of investment and commercial banks would theoretically protect those institutions from the large losses possible through those speculative investments. This partitioning is not a new idea. The

Glass-Steagall Act also separated investment and commercial bank activities. However, in 1999 the Gramm-Leach-Bliley Act or Financial Services Modernization Act

8 The delay itself is indicative of the state serving industry actors.

40 effectively repealed that provision (Sanati 2009). The partitioning of investment and commercial activities is a policy change that has implications for the structure of banks.

The second change occurred in institutional structures and procedures with the creation of the Financial Stability Oversight Council (FSOC). The FSOC has been granted very broad oversight of the activities of the individual regulatory agencies as well as systemically important financial institutions (SIFIs). Since previously states and different agencies have had fragmented regulatory purviews, the centralization of responsibility for the stability of financial markets marks a major turning point in US regulation.9 The FSOC has the ability to designate SIFIs, which must then meet more stringent regulation and reporting requirements than other financial institutions. SIFIs fall into two categories, Nonbank Financial Companies and Financial Market Utilities, and there are different threat tests for their identification.10 In order to be designated a SIFI, the head of the eight regulators,11 an independent member with insurance experience, and the Treasury Secretary must vote (Winkler 2014). The Treasury Sectary has a veto power, as s/he must vote for an institution to be designated. Figure 3 below details the institutions that have been designated in each category thus far as well as the threat test required in order to qualify as such an institution.

9 The FSOC website acknowledges this fact by noting that, “The Financial Stability Oversight Council has a clear statutory mandate that creates for the first time collective accountability for identifying risks and responding to emerging threats to financial stability” (U.S. Department of the Treasury, ‘About FSOC’). 10 Banks which are deemed to be globally systemically important are identified by the Financial Stability Board. 11 The eight regulatory bodies are the Office of the Comptroller of the Currency (OCC), the Federal Deposit Insurance Corporation (FDIC), the Consumer Financial Protection Bureau (CFPB), Federal Housing Finance Agency (FHFA), the Federal Reserve (FRB), National Credit Union Administration (NCUA), the US Commodities Futures Trading Commission (CFTC), and the US Securities and Exchange Commission (SEC).

41 Figure 3: US Systemically Important Financial Institutions

Threat Designated Institutions Nonbank Financial “material financial distress at the American International Companies U.S. nonbank financial company, or Group, Inc. (AIG), General the nature, scope, size, scale, Electric Capital, concentration, interconnectedness, or Corporation, Inc., mix of the activities of the U.S. Prudential Financial, Inc. nonbank financial company, could pose a threat to the financial stability of the United States” (Dodd- Frank Wall Street Reform and Consumer Protection Act) Financial Market “failure of or a disruption to the The Clearing House Utilities functioning of a financial market Payments Company utility or the conduct of a payment, L.L.C., CLS Bank clearing, or settlement activity could International, Chicago create, or increase, the risk of Mercantile Exchange, Inc., significant liquidity or credit The Depository Trust problems spreading among financial Company, Fixed Income institutions or markets and thereby Clearing Corporation, ICE threaten the stability of the financial Clear Credit LLC, National system of the United States” (Dodd- Securities Clearing Frank Wall Street Reform and Corporation, The Options Consumer Protection Act) Clearing Corporation Source: Author generated.

The FSOC designations are significant because they politically securitize financial institutions;12 institutions are only identified if they pose a threat to the financial stability of the US. After the financial crisis, the narrative politically securitizing finance was successful in making speculative activities a threat to the health of not only the US

12 Securitization is used with two meanings in this project: financial securitization and political securitization. When the term is used in the latter sense, it will be referred to as political securitization to avoid confusion. Initially developed to apply to security studies, political securitization is a process through which political actors commit a speech act to convince the public that there is a threat posed to a referent object (Buzan et al. 1998). Successful completion of the speech act then convinces the public to allow the political actors to use extraordinary measures to prevent the threat from damaging the referent object.

In the financial sense, securitization is “the process of creating securities by pooling together various cash- flow producing financial assets. These securities are then sold to investors. Securitization, in its most basic form, is a method of financing assets. Any asset may be securitized as long as it is cash-flow producing” (Securities Industry and Financial Markets Association, “Securities: An Overview”).

42 economy but also the world. This is evidenced by Secretary Paulson and Senator Dodd’s remarks comparing the potential of a financial system breakdown to the devastation of the terrorist attacks of September 11, 2001.

Dodd-Frank also expanded the authority of the Federal Deposit Insurance

Corporation (FDIC), the US Commodities Futures Trading Commission (CFTC), and the

US Securities and Exchange Commission (SEC). The extent of their new responsibilities is addressed in Figure 5.

Figure 4 below maps the institutions in the US financial regulatory regime immediately before the financial crisis of 2007-2009 and lists their responsibilities.

Notably the individual agencies and commissions are decentralized. There is a division of responsibility for regulating traditional commercial banking and regulating securities activities; the FDIC and Federal Reserve were responsible for the former and the SEC was responsible for the latter. Figure 5 on the following page illustrates the changes to the financial regulatory system after Dodd-Frank.

Figure 4: Pre-Crisis US Financial Regulatory Regime Map

Source: Author generated; adapted from Dimon 2012, 20.

43 Figure 5: Post-Crisis US Financial Regulatory Regime Map

Source: Author generated; adapted from Dimon 2012, 20.

In Figure 5 the new functions and responsibilities of the agencies are listed below their original responsibilities and have a shaded background. The connections between the agencies and FSOC denote that the chairperson, director, or comptroller of each agency serves on the Council. The Office of Financial Research supports FSOC directly by responding to its requests for information. The two new institutions are the Office of

Financial Research and the Consumer Financial Protection Bureau. Though CFPB is an independent agency it is located in the Federal Reserve.

The establishment of the Consumer Financial Protection Bureau (CFPB) was a significant institutional change. CFPB was created in 2011 to educate consumers, and collect and investigate complaints against financial institutions. Before the financial crisis there was no centralized body that collected consumer complaints. State authorities and

44 attorneys general are responsible for enforcing the rules that CFPB writes. Thus far CFPB has focused on financial products that extend credit to citizens, including mortgages, college loans, and credit cards.

Dodd-Frank enshrined the main policy and institutional changes in US financial regulatory regime after the financial crisis. The Volcker rule was a policy change that separated commercial and investment banking activities. Dodd-Frank changed the institutional processes of the CFTC, SEC, and FDIC. It also created new institutions: the

CFPB and the FSOC. The new policy of identifying SIFIs politically securitizes financial institution. Thus, the US response to a crisis in financialized capitalism was to secure, via new policies and oversight institutions, the nation’s financial institutions.

Financialization The financial crisis was a critical juncture that produced changes in the policy and institutions of the US financial regulatory regime, centralizing and increasing regulatory oversight over financial activities. However during and after the financial crisis, financialization ideology remained a fairly constant influence on the regulatory regime.

The form of the regime changed but the function of prioritizing finance-led growth strategies persisted. This section addresses the extent of financialization in the US and its impact on the US financial regulatory regime. The high-degree of financialization in the

US economy and its ideological regulatory capture of the US financial regulatory regime are driving modifications to the transatlantic regulatory regime that make the regime promote finance-led growth. Financialization of Anglo-American capitalism has increased the political salience of input from the financial industry into regulatory policy formulation, decision-making and implementation.

45 Scholars have noted that since the 1970s businesses have gradually begun to rely on profits from investments in financial products rather than production based profits. For example, in a number of members of the Organisation for Economic Co-operation and

Development (OECD) profits of financial activities/rentier income have increased as a percentage of gross domestic product (GDP) relative to profits from other sectors.

(Epstein and Power 2003) Financialization is commonly defined as the separation of financial activities and profits as removed from production-based activities and profits, the latter activities comprising the ‘real economy’ (Foster 2007; Foster and Magdoff

2009; Van der Zwan 2014).

Another debate in the development literature is whether financialization of the economy leads to economic growth, represented in GDP (King and Levine 1993;

Jayaratne and Strahan 1996; Bordo and Rousseau 2012; Law and Singh 2014). Though there is no consensus about the relationship between growth and financial development, it seems that solid legal and banking institutions are preconditions for financialization to contribute to economic growth (Chinn and Ito 2006; Law et al. 2013). These requirements would prime the US and EU for financialization, since they have some of the most developed legal and regulatory systems (Quaglia 2011).

Financialization has not just happened in the economic sphere but in the social sphere as well. Financial inclusion refers to the degree to which financial institutions and services are embedded in states. Measurements of financial inclusion include the number of loans from financial institutions, the number of bank accounts at formal financial institutions, and the number of points of service (bank branches) per capita (World Bank,

Global Project for Financial Inclusion). The more central financial products and services

46 are to everyday life, the more financial regulatory policies are likely to affect not just the financial service and product providers but also consumers and clients. This potentially creates a new broader interest group with political salience but without direct access to the regulatory regime. This process is reinforced by the prevalence of the financial- growth narrative; citizens can be made to believe that finance is central to their economic success and growing their net worth. This is perhaps no more prominent than in the

United States, as will be discussed below.

Financial regulation as a substantive policy area is different from other types of regulation. First, the pace of innovation in financial products and techniques is quick.

Some official accounts of the financial crisis suggest it was not deregulation or speculative investments which were to blame but rather a failure of regulatory agencies to keep up with industry innovation (Bernanke 2010). Susan Strange has argued that policymakers have routinely shirked their responsibility to regulate financial markets

(Strange 1986; Strange 1999). The corollary argument is that individuals working in the financial industry, either through a revolving door or self-regulation, are best poised to regulate finance because they are keeping up with industry innovation. This is a suggestion that regulation should be created by the regulated. This mode of regulatory policymaking has several consequences for the regulatory regime. The first is that former finance industry insiders heading regulatory agencies may be more sympathetic to or familiar with the desires of industry than to the desires of the American public; second, the access and relationships they have to other members of the financial industry may inappropriately influence their decisions; and third, they may plan their return to the financial industry after their turns as regulators.

47 These three scenarios might result in regulation in the interest of the regulated, or regulatory capture. Regulatory capture emerged in public interest theory to describe undue influence of one interest group over the decision-making of a regulatory agency

(Bernstein 1955; Stigler 1971; Posner 1974).

The second reason financial regulation is different from other types of regulation is that financial activity is a phenomenon relatively unrestrained by borders. National- level financial regulation is responsive to what occurs at the international level and to developments within global markets.13 Some financial regulation seeks therefore to limit or block exposure to global markets or financial flows, treating them as exogenous, potentially destabilizing forces. But the very act of having a currency traded internationally can expose states to the whims of markets composed of transnational forces. This is distinct from other economic regulation targeting exogenous forces that can be identified as within or of another state. This creates a very dynamic and interdependent regulatory process and again can increase reliance on industry representatives who represent the abstract markets to shape regulation. It also has led some states to use political narratives to securitize markets and financial activities.

Assessing the structure of the US financial industry, the financial sector’s size as a percentage of GDP, the narratives of financialization present before and after the crisis, and the dynamics that have dominated the regulatory policies will provide a basis for understanding if the role of civil society actors or state actors have changed in the US domestic regulatory regimes after the financial crisis.

13 This project will treat the market as an exogenous sphere of activity which is mostly independent from states and governments. Government intervention into markets is one form of regulation.

48 Financialization of the Economic Sphere The US financial industry is marked by its diversity, size, pervasiveness in everyday life, and political influence. The extent of financialization in the economic sphere changed very little after the financial crisis and puts the financial industry in a privileged position to contribute to the content of the US financial regulatory regime.

There are a wide variety of financial products and services provided by the financial sector in the US and the process of disintermediation has increased the typology of financial industry actors.14 The major subsectors are asset management, banking, insurance and venture capital (U.S. Department of Commerce). However, the trend towards consolidation of firms means that the US financial services industry is dominated by a relatively small number of firms in each sector (Berger et al 1999).

In 2014, the industries of insurance and finance alone accounted for 7.2 percent of

US GDP (U.S. Department of Commerce). It is important to consider this percentage as it relates to finance’s increasing contribution to GDP and as a smaller part of the entire financial sector’s overall contribution to GDP. Epstein and Power used Organisation of

Economic Co-operation and Development (OECD) data to determine the finance sector’s contribution to US GDP in every year from 1960-2000 (Epstein and Power 2003). Figure

6 shows that rentier income, or the income generated from economic rents, such as securities and other applications of existing wealth, has sharply risen as a percentage of

GDP from the 1960s to the late 1980s. Non-financial sector profits have not declined as drastically as a percentage of GDP, hovering around ten percent, but compared to the

14 Disintermediation is the process by which steps or intermediaries are removed from a supply chain; in finance, different financial services and products are made directly available to consumers and firms rather than requiring a bank, for example, as a means to attain a financial product. As will be discussed later, this process has led to a broader lobby in US regulated politics and has increased the imperative for industry- wide and transnational lobby groups.

49 other sources of contribution to GDP it has lagged behind. If larger contributions to GDP are made by the finance industry, combined with income from financial products, than are made by manufacturing or the totality of the non-financial sector industries, then policymakers may privilege industry input into regulation to prevent a decrease in GDP.

Financialization ideology prioritizes finance-led economic growth in GDP. This ideology leads policymakers to consult industry actors. Privileging industry input into regulation to keep finance-led growth assumes that states are competing to have GDP growth and larger GDPs than other states. States are in a financial regulatory competition with other jurisdictions. Beginning in the 1970’s the US has relied on financialization in order to grow the economy and as a result has politically securitized the economic success of the financial industry. That is, what is good for the financial industry, which will also be preferable to other industries that earn profits through financial activities, is treated as what is good for the US.

50 Figure 6: Rentier Income Share and Non-Financial Sector Profit Share: US GDP 1960-2000

Source: Epstein and Power 2003, 17.

Financialization in the US, reliance on growth from investment in and creation of financial products rather than growth in the real economy, is deeply entwined with a consumer and investor culture which fuels a seemingly boundless expansion of credit and securitization. The financial crisis of 2007-2009 revealed how much of the US financial system was driven by a desire to extend credit and securitize existing credit. The earliest signals of a crisis came from pundits who noticed the unsustainable housing bubble in the

US. Individual borrowers took large loans to purchase homes with exponentially increasing value, regardless of poor credit scores. As mortgage lenders made larger and larger sub-prime loans the prices of homes across the country were inflated beyond their actual values, creating a supply-side driven bubble (Coffee 2009). Mortgage firms have been labeled as irresponsible and blamed for their risky lending practices. When the

51 bubble did ‘burst’ it was alongside a large financial systematic failure that quickly overtook the housing market failure as the focus of both political inquiry and societal outrage.

Mortgage lenders are culpable for issuing loans to borrowers who could likely never repay, but the motivation for lenders to issue the loans existed because of another larger market distortion. With the advent of structured finance, investment banks were able to make large profits from buying existing debt and repackaging it as securities. One source of products to securitize was mortgage loans, even sub-prime mortgage loans.

Many banks even sought to acquire mortgage firms in order to assure a steady supply of loans to securitize.15 Securitization, in the financial sense, is a phenomenon essential to understanding the financial crisis and the different types of capitalism pursued in the US and continental Europe.16

“Securitization provides funding and liquidity for a wide range of consumer and business credit needs. These include securitizations of residential and commercial mortgages, automobile loans, student loans, credit card financing, equipment loans and leases, business trade receivables, and the issuance of asset-backed commercial paper, among others” (Securities Industry and Financial Markets Association, “Securities: An Overview”).

The securities created by investment banks to be resold for profit are rated by credit rating agencies. This rating is supposed to act as a form of quality-assurance of complex structured products. However the two large credit-rating agencies, Standard &

Poors and Moodys, disregarded their role as “gatekeepers” in order to pursue profit

(Partnoy 2006; Partnoy 2009). Investment banks pay fees to the credit-rating agencies for their services, creating an incentive for the agencies to inflate their ratings to obtain more

15 This risky vertical-integration strategy was especially fatal to Lehman Brothers Holdings and Merrill Lynch (Coffee 2009, 16.) 16 An initial definition is in footnote 12, on page 42.

52 business from the investment banks (Coffee 2009, 9). The rating agencies also faced competitive pressure from a new firm and may have inflated their ratings to keep the share of investment bank business they already had.

This profit-motivated interaction between credit rating agencies and investment banks created incentive distortions that produced contagion: mortgage firms were encouraged to produce sub-prime mortgages, investment banks were encouraged to lower their due diligence standards and use these mortgages to create securities, and credit rating agencies were encouraged to lower their professional standards and overvalue securities.

The systematic overvaluation of these securities led to a confidence crisis in

American financial markets. Realizing that the securities they themselves were producing were of less than advertised value, investment banks began to doubt the credibility of the entire rating system, and this undermined the entire system’s perceived reliability

(Gourevitch 2009, 1-2).

Though there were very tangible causes of the 2007 crisis, an analysis that attributed fault only to immediate tributaries would be superficial. The causal links involved with the 2007-2009 crisis extend to a set of underlying narratives of American financialization that fueled securitization and credit.

Financialization Ideology The US has contributed much of its own ideology and economic culture to the international financial industry standards. Much has been made of the Protestant work ethic and its contribution to successful capitalist national economies, but there is a new ethos that permeates corporations and popular culture in the US (Weber 2009). Financial product innovation is spurred by a focus on profit-making separated from the real

53 economy. A crash in 1987 led to a brief pause in the “greed is good” mentality, but the slow and steady rise of markets during the 1990s led many analysts to proclaim capitalism perfected (Krugman 2009, 9-10). Of course, the financial sector became aware of the remaining volatility in both 2000 with the crash of the high-tech sector and with the more severe liquidity implications of the 2008 crisis. The American form of capitalism and the cyclical lack of regulation makes the entire system vulnerable to these bubbles and crises (Miller 2008, 126; Helleiner 2009, 14). The American emphasis on securitization and pro-market capitalism is also at odds with other models of capitalism.

Financialized capitalism suggests that it is a form that eschews adding true value or growth to the economy in favor of adding profit and using derivatives (Miller 2008, 127-

131). This is an extreme form of financialization.

American financialized capitalism enjoyed a symbiotic relationship with the rise of neoliberalism. During the Reagan administration, neoliberalism championed privatization, liberalization, and deregulation (Harvey 2005; Miller 2008, 127-8). These principles quickly took root in the US, and the US used its global influence to advocate an international corollary, the Washington Consensus, which scholars assert is the primary evidence of the dominance of US interests in the international financial institutions (Konings and Panitch 2008, 22). Neoliberal principles became the basis for conditionality in the structured adjustment policies of the IMF and were presented as the panacea after the East Asian crisis of the 1990’s as well as the solution to transitioning planned economies (Stiglitz 2002).

Adoption of neoliberal tenets in the US created ideal conditions for an American financial crisis that spread globally (Beder 2009; Kotz 2009). Liberalization led to an

54 erosion of those regulations meant to protect American financial health, such as those on leverage ratios. The pursuit of finance-led growth through deregulation made the US extremely vulnerable to financial crises by lowering the standards to which financial institutions were held; shoddy or no due diligence led to many structured products having faulty foundations (Coffee 2009, 4-5). This deregulation will be examined in a later section of this chapter. Furthermore, the deregulation of finance in the United States created conditions which made the crisis a cold other nations couldn’t help but catch.

Liberalizing leverage ratios and financial flows, as well as having little oversight over structured products and their ratings, created conditions for a global economic pandemic.

Neoliberal policies are applied by policymakers, economists and technocrats who are also susceptible to the notions that the growth of finance is central to the growth of the US economy and that the complex financial industry is too engrained in the American economy to abandon. This has led to the political securitization of the financial industry in the US.17 There have been some attempts to extend political securitization theory to the economy (Aitken 2011). In the case of the financial crisis, political actors communicated repeatedly that the collapse of major financial institutions would threaten not only national economic stability but also elements of the ‘real’ economy, such as jobs and wages.18

17 Footnote 12 on page 42 contains a definition of political securitization. 18 The political actors committing the speech act were bipartisan in the US. One emblematic example is that both candidates for the presidency in 2008, then Senators Barack Obama and John McCain, included references to the risk posed by the threat of global financial instability. Obama’s speeches include references to the need to grant financial regulatory bodies “broad authority” (Obama 2008b). McCain suggested the connection of the financial system to the everyday economic activities of Americans: “any action should be designed to keep people in their homes and safe guard the life savings of all Americans by protecting our financial system” (McCain 2008a). He also suggested that despite the high financial cost of the proposed bailout, it was better than the potential ripples into the real economy if financial institutions failed (McCain 2008b).

55 Even at the height of the financial crisis, several systemically important US financial institutions were categorized as ‘too big to fail’ by the executive branch. The resulting bailout packages and new regulation constitute the extraordinary measures. The

US government provided TARP funds to support financial institutions whose dissolution was deemed dangerous to the economy as well as to shore up industries, such as the housing industry, whose failures were the result of contagion.

One dramatic episode marked the distribution of 130 billion dollars of TARP funds. In a meeting on Monday, October 13, 2008 nine banks were forced to accept capital injections (TARP funds) from the federal government (Landler and Dash 2008).

Hastily summoned over the weekend, the Chief Executive Officers of the nine largest banks in the US gathered at the Treasury Department. None of the CEOs were given any information about what the meeting was about before hand and their confused assistants bombarded Treasury Secretary Paulson’s office with calls and emails to inquire about the agenda up to an hour before the meeting. Assembling the leaders all in one room, simultaneously was a plan to build “peer pressure” so great they would agree to the proposal (Sorkin 2010, 519). Key US regulators were waiting to meet the CEOs:

Treasury Secretary Henry Paulson, Chairman of the Federal Reserve Ben Bernanke,

President of the Federal Reserve Bank of New York Timothy Geithner, FDIC Chair

Sheila Bair and Comptroller of the Currency John Dugan. Paulson opened the meeting by noting the instability of the financial system and suggested they had devised a scheme to restore confidence. What followed was an ultimatum to either accept the capital funds or be declared capital deficient. According to attendee Richard Kovacevich, then-CEO of

Wells Fargo & Company, he rejected the offer at first since Wells Fargo had adequate

56 capital (Kovacevich 2012). Paulson interrupted him: “ ‘Your regulator is sitting right next to me. And if you don't take this money, on Monday morning you'll be declared capital- deficient’ ”(Kovacevich 2012). Kovacevich’s account is supported by Paulson’s talking points: “If a capital infusion is not appealing, you should be aware your regulator will require it in any circumstance” (Paulson 2008). The regulators threatened to lie about the adequacy of capital in banks that had not participated in the exotic mortgage markets in order to keep the public from speculating about good and bad banks when the government would later lent money to several smaller banks. The regulators were concerned about stigma (Blinder 2013, 201). In the end, all of the bankers accepted the capital infusions rather than being painted by their regulators as undercapitalized.

In 2008 Secretary Paulson identified the institutions so central to US finance that they were held to a higher standard of capital reserve ratios. Now, the Financial Stability

Oversight Council (FSOC), which is discussed earlier in the chapter, maintains a list of the systemically important bank and non-bank institutions with large concentrations of assets and is empowered to institute more restrictive regulations on those institutions.

Attorney General Eric Holder has also admitted that prosecuting large financial institutions for breaking existing regulations is too dangerous to the national and world economy because of the size of financial institutions.19

As key service providers to citizens as well as financial intermediaries, banks are a cornerstone of the US financial industry. The trends towards consolidation means that

19 " But I am concerned that the size of some of these institutions becomes so large that it does become difficult for us to prosecute them when we are hit with indications that if we do prosecute — if we do bring a criminal charge — it will have a negative impact on the national economy, perhaps even the world economy. I think that is a function of the fact that some of these institutions have become too large." Holder in testimony to the Senate Judiciary Committee, ‘Oversight of the US Justice Department’, March 6, 2013.

57 ‘the big five’ banks, JP Morgan Chase, Bank of America, Citigroup, Inc., Goldman

Sachs, and Wells Fargo & Co, have been expanding over the past decade (Lynch 2012).

Assets at the largest banks have even increased in size by around 37% since the financial crisis and in 2013 accounted for 67% of all assets in US banks.20 The largest banks are only becoming larger. Bank size is a crucial feature because it signifies their centrality to the financial system. More institutions will become ‘too big to fail.’

Financialization ideology prioritizes finance-led economic growth. The near hegemony of financialization ideology in the US led to deregulation, liberalization, and poor oversight before the financial crisis. Though there have been changes to the institutions and policies in the US regulatory regime, financialization ideology has remained the dominant force of the US regulatory regime.

After the financial crisis, some groups challenged the hegemony of financialization ideology. This will be discussed in the section on social attitudes.

However, these groups were largely unsuccessful in dismantling financialization ideology. One potential explanation for the nearly seamless continuation of financialization ideology is the degree of financialization in the social sphere.

Financialization of the Social Sphere Regulation can incentivize behavior of individuals and households and influence social expectations and norms. Several aspects of the US regulatory regime have contributed to the financialization of the social sphere, creating a system in which individuals and households take for granted their reliance on finance in their everyday lives and are encouraged to use financial products and services to accomplish social

20 This measure includes the big five and Morgan Stanley (Gandel 2013). Accounts of the expansion are also confirmed by earlier accounts of these trends in Andrews 2009.

58 tasks. Individuals in the United States are not necessarily more likely than their counterparts in other industrialized economies in Western Europe to use financial services, such as having savings or retirement accounts (Global Partnership for Financial

Inclusion 2011, Charts in Appendix 1). However, unique political and social regulatory narratives shape American attitudes towards credit, the role of financial products in personal life and a consumer culture which exacerbate reliance on credit. Attitudes towards the role of the financial industry are important not only because they shape financial activity but also because they can contribute to the content and focus of regulation. As Stuart Banner put it, “One thus cannot understand why securities markets were regulated the way they were without situating them in the broader culture […]. How people in the United States regulated transactions in the shares of business enterprises in the middle of the nineteenth century, to take another example, often followed from their ideas about corporations at the time” (Banner 2002, 3).

This section will address two major dimensions of the social sphere in which the state has encouraged financialization: home ownership and retirement. Financialization of home ownership contributed directly to the financial crisis of 2007-2009. US government encouragement of financialization in retirement savings and personal accountability for retirement is coupled with an insecure domestic retirement system. This section addresses how the US government has supported financialization of two aspects of the social sphere. This can contribute to the salience of industry input into regulatory policymaking because it connects Wall Street to ‘main street’ by embedding financial products in the daily life of citizens.

Home Ownership Home ownership in the United States is a prominent part of the American Dream

59 and central to the notion of civic engagement. Housing policies at the federal and state levels have supported this notion by providing institutions, tax incentives and lending programs designed to enhance accessibility. These programs created pressure to provide liquidity in mortgage markets and extend credit to a wider pool of buyers. Prior to the housing market bust, buying a home was considered one of the safest and most reliable long-term investments, and a method of encouraging civic participation (Brandlee 2011).

Social and political mechanisms have thus sought to extend the ability to own a home to all members of American society, including the poorest, despite the risks inherent in borrowing an amount that for many is a high multiple of their annual income.21

Incentivizing home ownership through first-homebuyer tax credits and mortgage interest deductions sends the message to unsophisticated buyers that buying a home is a cost- saving measure that benefits everyone. These policies are accompanied by state and non- profit grants, which lend or gift down payments to low-income or first-time buyers (Stern

2011, 894).

In the absence of mortgage lending and down payment financing, the only people who can afford to purchase homes are those with an accumulation of wealth equal to the total purchase price or down payment amount. As part of a broader reform to make home ownership more accessible to all Americans, and particularly minorities, the federal government has supported policies that would increase low-income household home ownership and suggested that access to financial products is important for social equality.

In fact, the US Department of Housing and Urban Development (HUD) has referred to

21 At the height of the housing market boom, leverage ratios increased. A leverage ratio is the amount of credit extended, in the form of a mortgage in the case of housing, to the amount of income or capital supporting that debt. A conservative approach to lending would entail lower ratios, since it is easier for the borrower to fulfill the loan.

60 minority and low-income households as “underserved” populations or communities, labeling them in relationship to their position as consumers of financial products. 22 One argument in favor of encouraging low-income household home ownership was that it would lead to a positive social impact since new buyers would be incentivized to make long-term contributions to the community that they would not otherwise make as renters; the goal of these policies was to use financial products to change social behavior (Shlay

2006, 512-514). Policies seeking to extend home ownership to all Americans were successful and between 1994 and 2006 when, “homeownership among the lowest income quintiles grew more quickly than the national average, increasing at roughly double the national rate during the first half of the period” (Bostic and Ok Lee 2009:

218).

Incorporating these groups in the ranks of homeowners however also created a dangerous niche mortgage market: subprime mortgages. Mortgages made at less than favorable terms to borrowers with poor credit, subprime mortgages expanded rapidly between 2000 and 2006, from 2.6 to 13.5% of all loans in 2006, and loan quality rapidly decreased (Kratz 2007; Demyanyk and Hemert 2011).23 Many subprime loans are adjustable rate mortgage (ARM) loans, which allow borrowers to pay a much lower interest rate during an introductory phase of the loan. These ARM mortgage rates are considered teasers and increase after a set period of time. By coupling products with low, introductory rates that enable low-income Americans to buy into the American dream

22 This language is pervasive in HUD documents, particularly those developed by the Office of Policy Development and Research. One prominent example is “Path to Home Ownership for Low Income and Minority Households” published by the U.S. Department of Housing and Urban Development in fall 2012. 23 Demyanyk and Hemert define loan quality as “based on their performance, adjusted for differences in observed loan characteristics, borrower characteristics, and subsequent house price appreciation” (Demyanyk and Hemert 2011, 1849).

61 with insufficient regulation to ensure financial literacy or credible commitments, the mortgage regulatory process and federal government policies encouraged borrowers to make unsustainable financial decisions. In investigating the government role in affordable housing policy in creating the financial crisis, the Committee on Oversight and

Government Reform in the US House of Representatives found that “successive

Republican and Democratic administrations made campaign promises to extend homeownership to lower and middle income families through the action of the federal government which were later fulfilled through extending the subprime mortgage market”

(Commission, Financial Crisis Inquiry 2011).

In a comparative lens, US government policies are among the most encouraging of a broad use of financial products to attain high levels of home ownership in the developed world. Tax incentives for home ownership in the US are “among the highest in the OECD world” (Schelkle 2012, 67). In a comparative study of social regulatory policies promoting homeownership, Schelkle finds that the institutions that the US government established to provide liquidity (Fannie Mae and Freddie Mac) and guarantee mortgage loans to lenders (Federal Housing Authority or FHA) used less targeted lending practices than their equivalents in France (68). The effect on demand was that a very

“ambitious” market for mortgages was created; people of different income levels wanted to and expected to be able to buy homes (68).

Homeownership support provided by the government has also increased financialization in the social sphere by decreasing the percentage of the total purchase price a required down payment must represent. Through the FHA loans, buyers can qualify to make a down payment of only three point five percent on a home rather than

62 the traditional ten percent down payment to establish a base of equity.24 The equity homeowners have in their homes has decreased substantially. That is, they are financing a greater portion of their homes initially and taking equity out of their homes by refinancing. Figure 7 presents owners’ equity as a percentage of value of household real estate from the early 1950s to the present.

Figure 7: Owners' Equity in Real Estate as a Percentage of Household Real Estate

Source: Federal Reserve Bank of St. Louis, Economic Data

Despite the risk of mortgage default, the federal government has encouraged owners to remove equity from their homes and finance a greater portion. The Department of Housing and Urban Development website details buying a home and loan programs offered by the government. One suggestion the Department of Housing and Urban

24 Figures and regulations are valid for single-family homes; multiple-family homes and cooperative apartments are subject to different regulations. The U.S. Department of Housing and Urban Development (HUD) web page on buying and loans has detailed information (Buying/Loans).

63 Development website makes is that seniors who have paid off most or all of their homes would potentially benefit from a reverse mortgage.25 A reverse mortgage allows owners to take equity out of their home as a loan. Low equity levels in home ownership can lead to default, especially during an economic crisis since it can trigger negative equity in which homeowners owe more on their mortgage loans than their homes are worth

(Campbell and Cocco 2014).

US federal government regulatory activity in the sphere of homeownership has increased household reliance on financial products and encouraged the usage of new financial products such as types of subprime mortgages and down payment grants. This has contributed significantly to the financialization of the social sphere.

Retirement Accounts Federal government retirement income in the US is provided through a monthly

Social Security payment, the amount of which is determined based on the recipient’s lifetime contributions and annual income. For some retirees, this social security income is not sufficient to cover monthly expenses. Retirees in the US are less likely than other countries to have other pensions provided by their jobs (Wisenberg 2014). As a result, retirees often supplement their social security income with income from private retirement accounts.

The US government has encouraged Americans to use financial products to save for retirement through tax deductions, developing new government-backed products, and even proposed automatic enrollment in private account schemes. Contributions to

25 “Are you 62 or older? Do you live in your home? Do you own it outright or have a low loan balance? If you can answer "yes" to all of these questions, then the FHA Reverse Mortgage might be right for you. It lets you convert a portion of your equity into cash” (U.S. Department of Housing and Urban Development, ‘Let FHA Loans Help You’).

64 individual or employer-provided retirement accounts are tax deductible subject to a maximum contribution, employment status, income level, and age criteria. In 2001,

President Bush signed the Economic Growth and Tax Relief Reconciliation Act

(EGTRRA) into law. Though the law is likely most known for its reduction in the percentage of personal income tax paid by those individuals in the top tax bracket, it also increased the limits for tax-deductible contributions to savings accounts, allowed catch up payments for individuals over 50 years of age, offered incentives to small employers to offer sponsored retirement plans, and created the transfer of retirement accounts (Burman et al. 2004, 11-14). Individual retirement accounts (IRAs) are not only prudent financial planning but a money saver in years with unexpected growth in earned income. While employer-sponsored retirement accounts are traditionally managed by a firm of the employer’s choosing, IRAs are managed by the contributor’s choice of manager. Though it is possible that these accounts can be kept as savings, both allow allocation in various financial products, such as stocks, index funds, and mutual funds, and a conservative allocation strategy is a likely outcome of self-guided or private management.26

Similar to the case with access to homeownership, although retirement savings were initially more accessible to higher-income American workers the federal government has also tried to extend employer-sponsored and private retirement accounts to low-income American workers. “Pension and IRA tax benefits are mostly concentrated among high- income taxpayers for two reasons. First, they can afford to save. Second,

26 The self-guided investment services, offered by firms such as Vanguard and Fidelity, coach investors towards using their stages of life as a way to determine investment strategy but often explicitly caution against too conservative of an investment strategy even for those close to retirement. “While many investors approaching retirement today may be more comfortable investing conservatively as a result of market volatility, they could be missing growth opportunities” (Fidelity Investments 2013, 6. ‘Income Diversification: Creating a Plan to Support Your Lifestyle in Retirement’).

65 they face the highest marginal tax rates and thus stand to gain the most from tax deductions and exclusion” (Burman et al. 2004, 1). EGTRRA introduced a Saver’s Credit for low-income households, which currently is available to single filers with less than

$30,000 in adjusted gross income. The Saver’s Credit allows the percentage of contributions which are tax deductible to increase as adjusted gross income decreases

(See chart in Appendix 2. Internal Revenue Service, ‘Retirement Savings Contributions

Credit (Saver’s Credit)’).

According to the White House, only half of American workers have access to employer-sponsored retirement accounts (White House 2014). With the additional hindrance of fees required to open and maintain IRAs, many low-income workers are dissuaded from contributing money to any separate retirement account. In an attempt to redress this, the Treasury Department introduced government-backed retirement accounts called myRA. The funds allow workers to set aside small amounts of money, as little as

$5 per paycheck, towards a retirement account administered by the Treasury Department with an interest rate tied to the Government Securities Investment Fund and no risk of losing the principal contribution (White House 2014). This program will also encourage employers to provide access to an auto-enroll feature, through which employees would need to opt-out in order to not participate in the myRA program. However, these accounts are ultimately folded into private sector fee IRAs. After either 30 years or $15,000 in contributions participants must transfer their funds to the private sector. This feature of the program serves two purposes, both of which demonstrate the degree to which retirement is a section of the social sphere that has been financialized.

66 First, elements of the financial industry, seniors’ organizations and the Tea Party have noted their concern that the government was going to “nationalize” all retirement accounts (Stern 2012; National Seniors Council 2010; Corsi 2014; TeaParty.org 2014).

The cap ensures that eventually low-income contributors will become consumers of traditional fee-generating financial services and existing accounts are not folded into the plan ensuring that the revenue stream from wealthy earners to the financial services industry continues. Second, as mentioned previously myRA accounts would be earning interest at the rate of the Government Securities Investment Fund (G Fund). The G

Fund’s stated investment objective, “is to produce a rate of return that is higher than inflation while avoiding exposure to credit (default) risk and market price fluctuations”

(Thrift Savings Plan). The lack of volatility and risk makes the G Fund an appealing investment choice, but those with a higher risk tolerance could earn considerably more interest in other options or diversify their portfolios with a mix of risky and conservative investment choices. The cap serves to ensure that those with retirement accounts of

$15,000, providing a certain security, will have the potential to earn more than the G

Fund interest rate on some of their accumulated retirement funds.

Rather than enhance the existing scheme for government-provided retirement income in response to the burst of the dot-com bubble which eroded private investment accounts, the federal government sought to compensate for insufficient social security income and private savings by incentivizing private retirement accounts that earn fees for managers and financial firms. The government solution to ensure low-income earners have sufficient savings for retirement is to extend a new tax credit and providing free, government-backed private accounts.

67 In summation, Americans rely on financial products for key tasks in their everyday lives. They are encouraged by policymakers to use financial products.

Policymakers are captured by financialization ideology to solicit the input of industry actors in making financial regulation, but this is compounded by the deep financialization of the social sphere. Despite the financialization of the social sphere, during the financial crisis two groups emerged to challenge financialization ideology.

Financial Crisis: Challenging Social Attitudes Public attitudes can contribute to the shape of regulation and in the US financialization of the social sphere has influenced public attitudes and convinced

Americans that finance is necessary to grow the economy and perform essential functions in their lives. In other states that do not pursue finance-led growth or those with less financial inclusion, public attitudes towards finance are different. Some social forces have attempted to counterbalance this narrative following the financial crisis of 2007-

2009. During the financial crisis, the financial elites received a national bailout of their risk-taking though ‘main street’ did not. For this reason, the financial crisis of 2007-2009, much like the stock market crash of 1929 before it, caused a shift in social attitudes towards finance. Two groups emerged in response to the bailouts: Occupy Wall Street and the Tea Party. The Occupy Wall Street movement and Tea Party movement were emblematic of a societal question about the role of finance in American lives and the privileged access of the financial industry to the US government.

The Occupy Wall Street movement responded to the US government bailout of the financial industry during the financial crisis by distinguishing itself as representing the ninety nine percent and not the top one percent of US income earners (Piven 2012).

This deliberate effort to separate ‘main street’ from Wall Street and single out the

68 financial elite allowed those involved with the movement to articulate what about the political consequences of financialization was troubling: finance was deemed by the US government as too crucial to the success of the national economy to fail—or be prosecuted—but individuals were not. The bailout proved that there was a form of financial exceptionalism. Occupy Wall Street raised public concerns about inequality in economic distributional gains as well as inequality in justice (Jordan 2011). One account from Investment News concisely surveys the issues that members of the occupy movement raised, “Demonstrators have called for a variety of changes, including the return of the Depression-era Glass-Steagall Act and an enactment of the so-called Buffett

Rule, a new tax that would be assessed on individuals making more than $1 million a year. But the movement also has raised objections to broader issues, including the dismal job market, student loan debt and investment banks' role in selling doomed mortgage- backed securities” (Mercado 2011). There are scholars (Craven and Zhang 2012) who would contest that the Occupy movement was too diverse and too loose of a coalition to characterize as standing for any shared set of goals, but the sum of their individual calls questioned the role of finance and capitalism in the American economy and questioned the performance of the national government as an intermediary between them.

The movement inspired critiques of the government’s special handling of the financial industry. Some went as far as to suggest the national government had been complicit in ‘engineering’ mergers which prevented banks from failing but also exempted them from carrying the risk of toxic debts.27

27 “First let's consider the action that was undertaken in early 2008 by the Federal Reserve with respect to the troubled investment banker, Bear Stearns. The collapse of two Bear Stearns hedge funds in mid-2007 is widely regarded as ushering in the worldwide financial crisis. Rather than permit this notorious investment banker to fail, the Fed engineered an ‘acquisition’ of Bear Stearns by J. P. Morgan Chase (‘J.P. Morgan’)

69 The Tea Party emerged as a social and protest movement opposed not only to the bailout of financial industry actors but also of those measures designed to bailout individual borrowers in negative equity on their mortgages. The rhetoric recognized the government’s role in advocating the use of and even providing mortgages to individual borrowers but did not shield those who borrowed from blame. One prominent example of such rhetoric is an on-air statement from Rick Santelli, a Consumer News and Business

Channel (CNBC) editor: “ ‘The government is promoting bad behavior,’ Santelli said, asking why Obama would make Americans who pay their bills subsidize the mortgages of "losers’ ” (Perlberg 2014). The Tea Party asserted that individuals whose borrowing behavior responds to government incentives should be held accountable for their mortgages and that the if the Obama administration bailed the individuals out it would contribute to moral hazard (O’Hara and Malkin 2010).28

Adherents to the Tea Party movement have since sought institutional participation in the legislative branch of the federal government. In 2010, Representative Michele

Bachmann formed a Tea Party Caucus in the US House of Representatives and 52

Republican members joined (Zernike 2010; Gervais and Morris 2012). The institutionalized political voice is characterized as belonging to the “militantly nativist,

whereby the central bank contributed $29 billion of U.S. taxpayer money to J.P. Morgan to accomplish the transaction. The agreement, which was ‘negotiated’ during the weekend before the merger, provided a sweetheart deal to J.P. Morgan, including that the funding to J.P. Morgan would be nonrecourse, i.e., J.P. Morgan would not be required to repay the debt out of its own assets if things went bad. Instead, to ‘secure’ this massive bailout, the Federal Reserve, on behalf of the U.S. taxpayers, took some of Bear Stearns' worst, most abysmal, toxic finance products as security” (Myers 2012, 53).

28 Moral hazard is the economic principle that individuals and firms are more likely to take risks if they do not expect to suffer negative consequences from the risk taking. In an account of the financial crisis, Krugman provides this definition: “any situation in which one person makes the decision about how much risk to take, while someone else bears the cost if things go badly” (Krugman 2009, 63).

70 anti-labor, and libertarian populist right” (Post 2012). In an analysis of the 52 members of the caucus, Gervais and Morris discovered that the members of the House of

Representatives have constituencies with more similar ideology about the government’s role in the financial system, a finding which echoes the rhetoric from the social movement. “Our analysis also strongly suggests that voters’ ‘anger,’ which is widely presumed to drive the movement, is not so much a reaction to desperate economic circumstances but a reaction to government spending in response to the economic downturn. Rather than serving the districts hardest hit by the recession, caucus members serve the districts that are paying for the projects, programs, and payments to more depressed areas” (Gervais and Morris 2012, 249).

One reform proposed in the US is also being considered in the EU: a financial transaction tax. Since the financial crisis, a number of members of the US Senate and

Congress have proposed a financial transaction tax (Pollin 2012). Modeled after the

Tobin tax proposed on cross-border currency swaps, a financial transaction tax is intended to stave off short-term and speculative trading activity and fund ‘main street’ programs. The Congressional efforts have thus far been, “stymied by Wall Street lobbyists and the Obama administration” (Carter 2015). US Senator Bernie Sanders, a contender for the US Democratic Party nomination for President in 2016, proposed a national financial transaction tax and introduced the Too Big to Fail, Too Big to Exist

Act. The latter, “would break up the big banks and prohibit any too-big-to-fail institutions from accessing the Federal Reserve’s discount facilities or using insured deposits for risky activities” (Sanders 2016). This would address a problem discussed earlier; that regulation has not prevented the concentration of assets in the big five banks. Senator

71 Sanders’s proposed tax would apply to “speculative trading in stocks, bonds, derivatives, and other financial instruments” (Nichols 2015). Financial industry actors are funding studies that will question the benefits of such a tax (Baker 2015).

After the financial crisis social attitudes shifted to oppose government intervention to support financial institutions, and, in the case of the Tea Party movement, to support individual borrowers. However, the changes in the US financial regulatory regime supported financial institutions and made stabilizing them a top priority. This apparent contradiction will be explained by regulatory capture in the US regulatory regime and developments in the international regulatory regime that US policymakers used to justify their securitization of the US financial system.

Network Salience Despite the transnational nature of financial flows, geographic locations still can provide a meaningful demarcation of specialization and activity. The global financial system has a “hierarchical network” structure and is “centered firmly on US capital markets” (Oatley et al. 2013, 135). This section will assess the implications of this centrality for the transatlantic, and international regulatory regimes. In the transatlantic regulatory regime, the network centrality makes industry actors salient to the creation of regulation because it allows for competition with other regulatory regimes. In the international regulatory regimes, the US’s network centrality empowers it to set regulation.

New York City is a central hub for finance in the US and the world and is currently ranked as the number two financial center in the world (The Global Financial

Centres Index 15). The Global Financial Centre Index (GFCI) is published in March and

September every year. London took the top spot from New York in September 2015. The

72 GFCI ranks centers based on measures of the business environment, infrastructure factors, human capital, reputation, and financial sector development. Since the first index in 2007, London and New York have always occupied the top two ranks. They also currently hold the top two spots in all of the sub-indices (Global Financial Centers Index

15, 9).

Susan Strange (1998) and Saskia Sassen (2002) have emphasized New York’s status as a crucial location for the finance industry because of the concentration of financial activities which take place in the city. In network theory cities with particular strength in an industry are seen as hubs. Connecting these hubs to financial flows, which seemingly occur in the ether, is a task that is reputed to daunt financial regulators and a phenomenon which has spurred several transnational regulatory bodies (Buthe and Mattli

2011). Castells has furthered the network theory by attempting to map such economic flows over places (Castells 2000). It also creates an opportunity for interdisciplinary work into, “the extending social, spatial, and political reach of financialization” (Pike and

Pollard 2010, 3). This concept of global financialization has been analyzed in a network context by the disciplines of geography, economics, sociology and political science

(Buck-Morss 1995; Krippner 2005; Lee et al 2009; Pike and Pollard 2010).

Although there is a well-documented centralization of financial industry activity in New York, the financialization of the American economy through economic liberalism has provided additional regulatory salience. Some scholars note that American finance has developed a power of attraction and that financial globalization is actually the expansion of American financial imperialism (Konings and Panitch 2008; Konings 2009;

Gindin and Panitch 2012). The implications of this model are that the American financial

73 firms are the most relevant to the international financial regulatory regime and have a transnational standard-setting power and political salience. The alignment of US finance and the global financial markets gives American financial regulators and financial industry actors a competitive advantage in setting global financial regulations through both intergovernmental bodies as well as private industry bodies (Oatley 2013). Drezner has asserted that the EU and US are privileged in establishing global regulations which favor their interests because of the size of their markets (Drezner 2007). Though it may seem paradoxical with the plethora of global governance arrangements which include non-state actors, his contention is that the EU and US as “great powers” have become more relevant to international regulatory networks because other states are eager to participate in their markets.

However, Drezner underplays the role that different levels of industry development play in determining regulatory outcomes. High levels of industry development attract foreign adopters of private and public industry regulatory standards.

The level of development of American financial markets, the financial depth of markets, and the centralization of financial services in New York are the primary sources of attraction to the US model of finance (Castells 2010; Wojcik 2013). Financial industry development is often contingent on the financial system in which it initially operates

(Rajan and Zingales 2003). There are several suggestions about what constitute necessary elements of a developed financial system (Ferguson 2002; Rajan and Zingales 2003).

The operations of the finance industry were initially more geographically limited, but through advances in technology and communications, financial flows are less limited

(Eichengreen 2008). Nonetheless, those technologies must be available to industry actors

74 seeking to take advantage of them; advanced, industrialized economies have an advantage in acquiring new technologies and communications.

Countries have begun to shape regulatory standards to attract investors and win the approval of industry, rather than try to win the approval of international regulatory bodies. This is a form of regulatory competition between national jurisdictions to attract investors and financial firms. In the case of the securities industry, corporate reorganizations in the 1980s favorable to financialization of businesses29 led to substantial growth in the US and United Kindom (UK) securities sectors (Walter and

Smith 1998, 85). During this period, the securities sector developed several new innovations and products. Recognizing the potential of the securities sector to contribute to growth, OECD countries began to deregulate. Emerging market economies began to follow suit, even “leapfrogging the reforms seen in the traditional market-economy nations” (Walter and Smith 1998, 85). Before the Asian financial crisis of 1997, economic liberalization was a strategy employed by emerging market economies to avoid regulatory arbitrage making them unattractive to developed financial firms (Eichengreen

2008, 135). The desire of US policymakers to maintain US network centrality in the global financial system and the corresponding potential for finance-led growth have contributed to the creation of a transatlantic financial regulatory regime.

Since the UK is an EU member state, the nexus of US-UK financialized, market- model capitalism, headquartered in New York and London—the two top global financial centers—directly connected to the considerable power the US and UK enjoy in the context of regulation setting in both the EU and international regulatory regimes (Wojcik

29 Specifically recapitalization of firms, during which equity is replaced by debt.

75 2013). Chapter 3 will address the UK’s centrality in the global financial network and the corresponding power it enjoys within the context of EU regulatory regime.

Relationship of Regulators to Industry In the US financial regulatory regime, the close relationship of regulators to industry is marked by the ideological, or deep capture of policymakers by financialization. The relationship of the regulated to the regulators in the US financial regulatory regime is one impetus behind the change in the transatlantic regulatory regime after the financial crisis. The federal policymaking process in the US is designed to allow several opportunities for input from stakeholders. American democratic policymaking relies on the principle of pluralism in which interest groups compete to influence policy.

In a typical policymaking cycle, the opportunity to influence comes before a policy is enacted; interest groups may try to change public opinion or directly influence legislators.

However, the regulatory policymaking process may afford interest groups additional opportunities to influence outcomes. Interest groups may lobby a regulatory agency after a law has been passed by the US Congress but before it is implemented and there are often public comment periods dedicated to this purpose.30 Additionally, industry actors are in a “privileged position” to influence regulatory policymaking if there are significant economic implications of regulation (Lindblom 1977, 175-180). Other groups can still influence the policy, but business may have more direct access or influence. In the case of the US financial regulatory regime, this privilege is so great it amounts to regulatory capture.

30 If there are state-level implications for administering the regulation, interest groups may also seek to lobby at that level as well.

76 Several critiques of the close relationship of US regulators to the regulated have been made by the news media, citizen interest groups and scholars (Crotty 2009; Baxter

2011). The US employs former industry officials as regulators. After their turn as regulators, some individuals do return to the finance industry leading to charges of a

“revolving door” (Crotty 2009, 577; Organisation for Economic Co-operation and

Development 2009, 2; Baxter 2011, 197; Johnson and Kwak 2011, 93). This regulatory capture has been pronounced following the financial crisis (Baker 2010, 652-653). In his first-hand account of the attempt to reform Wall Street, former Sentator Ted Kaufman’s

Chief of Staff Jeff Connaughton notes the large number of former regulators who lobby for the finance industry because it is seen as a way to career advancement (Connaughton

2012).

Secondly, individual financial firms and financial industry actor groups typically have ample access to regulatory policymakers. Though one branch of scholarship asserts that this lobbying is another form of regulatory capture, (Hardy 2006; Baker 2010) financial industry representatives are unique in that they are embedded in the regulatory process because of the financialization narrative (Johnson and Kwak 2011, 90-95).

Johnson and Kwak assert that the financialization narrative captured regulators through group-think:

“Between the revolving door and the competition for regulatory ‘business,’ there was a confluence of perspectives and opinions between Wall Street and Washington that was far more powerful than emerging- market-style corruption. Wall Street's positions became the conventional wisdom in Washington; those who disagreed with them […] were marginalized as people who simply did not understand the bright new world of modern finance. This group-think was a major reason why the federal government deferred to the interests of Wall Street repeatedly in the 1990s and 2000s” (Johnson and Kwak 2011, 95).

77 In his detailed analysis of capture in the US financial regulatory regime, Baxter explains the current privileged position of financial industry:

“[Capture] turns out, however, to be very relevant in the context of contemporary financial regulation for two distinct reasons. First, the overt conduct of the industry and various high regulatory officials appears to demonstrate the kind of extreme situation in which one of the regulated interests—namely the very large financial institutions—have secured such dominant influence that it may be said that they have captured the regulators, the regulatory process, and the regulated outcomes, to the disregard of many other important interests” (Baxter 2011, 181).

Baxter goes on to cite the Office of Thrift Supervision, the Office of the

Comptroller of the Currency (OCC), the Federal Reserve, and the Securities and

Exchange Commission (SEC) as having adopted regulatory interpretations that aid corporations, and banks in particular, in evading existing restrictions. He dismisses the “shallow concept of visible capture” as insufficiently representing the current state of financial regulation and elaborates his own concept of deep capture to explain the extent to which capture is “embedded within the financial regulatory system” (Baxter 2011, 182). His concept suggests that the American

“financial and economic public policy process has been systematically captured by large-scale financial interests” through significant access, the revolving door, and lobbying efforts (Baxter 2011, 182, 191).

During the financial crisis, chief executive officers of banks were given privileged access to the President, cabinet, and members of Congress. Former and current CEOs as well as former government officials have given first-hand accounts of their encounters. Former Barclays CEO Bob Diamond suggests that

78 he was summoned to a meeting with Senators to suggest regulation.31

Regulators sought out the input of those they were regulating in order to craft regulation because of the hegemony of the financialization ideology. “Most important, as banking became more complicated, more prestigious, and more lucrative, the ideology of

Wall Street — that unfettered innovation and unregulated financial markets were good for

America and the world — became the consensus position in Washington on both sides of the political aisle” (Johnson and Kwak 2011, 5). Financialization is an accepted ideology for both Democrats and Republicans, and it is a norm that regulation should serve financialization. With complex financial products and fast-paced innovation that means allowing bankers to design the regulations to which they will be subject.

Conclusions This chapter presents evidence that after the financial crisis there was a reorganization of the US financial regulatory regime through the creation of new policies and institutions, and the addition of responsibilities to existing institutions. However, the ideas behind the regulatory regime did not change nor did the goal: to encourage financial-led growth and secure the stability of financialized-capitalism. The high degree of financialization in the US economy and social sphere led to political securitization of financial institutions and deep ideological capture of policymakers by the financial industry. This supports the project’s assertion that the financial crisis was a critical juncture in the US financial regulatory regime and provides a basis for comparing the EU and US financial regulatory regimes.

31 “Soon after the financial crisis of 2008 I was at a meeting in Washington with a group of US senators. They had invited me to provide a point of view on new regulation; regulation aimed at ensuring we never have to go through the events of 2008 ever again” (Diamond 2011).

80 Chapter 3: EU Financial Regulatory Regime This project argues that the financial crisis was a critical juncture not only in the

US and EU financial regulatory regimes but also in the international financial regulatory regime. The reverberations from the domestic and international levels have led to institutional changes in the transatlantic regulatory regime. This chapter will use the method of process tracing to identify the ideology, policies, institutional structures and processes of the EU financial regulatory regime before and after the financial crisis to demonstrate that the crisis was a critical juncture in the regime. The institutional procedures and structures, and policies of the regime have become centralized under the new European Systemic Risk Board but the policymaking process in the EU has allowed ideological, deep regulatory capture of EU policymakers. This chapter will use network analysis of financial centers to explain how after the financial crisis of 2007-2009 finance-led growth and financialization are dominant ideas in the EU financial regulatory regime. These ideas impact the relationship of the regulated to the regulators, notably in the EU Commission, and at the transatlantic level it privileges the access and input of industry actors and groups. In turn, and as will be demonstrated in Chapter 4, alignment in the EU and US financial regulatory regimes is essential to explain the emergence of the transatlantic financial regulatory regime after the financial crisis.

Before and After the Financial Crisis This section will establish the antecedent conditions in the EU financial regulatory regime and identify the changes to the regime during and after the financial crisis of 2007-2009. This will demonstrate that the financial crisis was a critical juncture in the EU financial regulatory regime and partially explain why there have been changes

81 to the transatlantic regulatory regime. Before the financial crisis, efforts to extend the single market to financial services were prompted by the belief that it would lead to more competitive services and products. But creating a single market in financial services required building an EU regulatory regime with some coordination of national regulatory standards and processes. In 1999 the European Union endeavored to create a single market for services and goods, but because of financial flows’ geographic peculiarities and the differences in the varieties of capitalism practiced by member states, some financial services and products were not subject to EU level regulation until the financial crisis. Other pieces of the parallel international financial regulatory regime, for example the Basel process in the banking sector, pre-empted potential EU level regulation

(Quaglia 2007).

Responding to requests by the Council and by the Economic and Financial Affairs

Council (ECOFIN), the Council formation of member state economic and finance ministers, the Commission created a Financial Services Action Plan (FSAP) that outlined areas for harmonization. In 2001 the Lamfalussy process, so named after Alexandre

Lamfalussy who headed the high level advisory committee, created a four level implementation scheme responsible for framework goals and specific recommendations to add flexibility to national securities legislation (Raptis 2012, 61-62). The Lamfalussy process resulted in three committees that were responsible for coordination between member state’s supervisory authorities in the banking, pensions, and securities sectors; these were the Committee of European Banking Supervisors (CEBS), Committee of

European Insurance and Occupational Pensions Supervisors (CEIOPS), and the

Committee of European Securities Regulators (CESR). Figure 8 maps the institutions of

82 the regulatory regime in the European Union and their responsibilities before the financial crisis. The committees were independent authorities in the European Union and could offer advice to the member state supervisory authorities and the European

Commission.

Figure 8: Pre-Crisis EU Financial Regulatory Regime

Source: Author generated.

The FSAP was slowly implemented through the Lamfalussy process until 2004, but following the financial crisis there was a renewed desire to address some of the more speculative financial risks. The German and French governments supported a financial transaction tax of 0.1 percent of share and bond trades and 0.01 percent of derivative

83 transactions. This proposal was in contrast to the UK and US preference for a levy on financial firms to create a bailout fund for the future.

Germany has considerable influence over economic and monetary issues in the

European Union and its Bundesbank design and principles were the inspiration for the

European Central Bank (Kaltenthaler 2005). German economic stability, fiscal prudence, and stable growth have given German positions on economic issues in the EU a moral salience. Within the Eurozone, the German government has a near veto since analyses suggest the Euro currency would flounder without Germany’s continued participation in the currency (Steinherr 2012). However, Germany has had little influence compared to the UK in the area of the financial transaction tax (discussed below) because of London’s network salience in finance and the EU’s consensus-oriented decision-making process which will be discussed later in the chapter.

In 2011, the European Commission proposed a financial transaction tax (FTT) on

“financial instruments between financial institutions when at least one party to the transaction is located in the EU” (European Commission 2011). After it became obvious that the FTT was a policy that would not be universally approved by EU member states in

ECOFIN, ten member states are opting in using the enhanced cooperation procedure.

Many of the member states have declined to participate in the FTT explicitly because the

UK is not participating. Without UK participation in the FTT, the FTT will divert companies and financial activity from member states participating to the UK. The UK has refused to implement the FTT unless it is global, recognizing that Tiebout’s theory of regulatory competition posits that without universal adoption there will be competition between jurisdictions. According to Tiebout’s theory, the EU, and specifically the UK,

84 will lose financial service providers. The assumption of mobility inherent in the regulatory competition model is especially applicable to the financial services industry because of the ageographical nature of financial flows. Most financial services firms can work from any geographic location.

Despite the UK government’s position, public opinion polls have generally been in favor of the FTT—even in financialized economies including the UK. The EU

Commission’s DG for Communication conducted a poll in April and May 2011 and asked respondents if they in principle would favor a financial transaction tax (Directorate

General for Communications 2011). The results show that Austrians (80%) and Germans

(71%) are those most in favor while Malta (44%), Slovenia (39%) and Poland (36%) have the highest percentages of those opposed. Those countries with high percentages of

GDP contributed by finance surprisingly show majorities in favor of the FTT:

Luxembourg (65%), Netherlands (58%), Ireland (55%), UK (65%). Appendix 3 details the percentages for each member state. The poll also revealed the reasons why people were in favor. Of those across the EU in favor, 41% believed the FTT would combat excessive speculation and help prevent future crisis while 35% rather believed it would make financial players contribute to the costs of the crisis.

Of those opposed, 22% selected a decrease in competition as their reasoning and

26% believed the FTT would only be effective if enacted at the global level. An additional 22% suggested that they were opposed because it would only make European financial players contribute to the costs of the crisis (Directorate General for

Communications 2011, 13). These responses would indicate that EU citizens desired to have the costs of the financial crisis be shared with the financial industry, avoiding moral

85 hazard, but that they also are sensitive to the interdependent nature of multilevel financial regulatory regimes. The results do not demonstrate political securitization of finance.

That is, the public is not concerned with the competitiveness of the EU financial industry.

The full results of the poll are available in Appendix 3.

The financial transaction tax is a delayed response to the speculative investments that contributed to the financial crisis but the immediate responses to the crisis were not coordinated within the EU (Darling 2012). National ministries did what was necessary to shore up their domestic financial institutions and protect their domestic investors and depositors. One compelling account of the unfolding of the financial crisis comes from the memoirs of Alistair Darling who served as UK Chancellor of the Exchequer from

2007-2010 (2012). When Ireland took the unprecedented step of guaranteeing all liabilities in Irish banks on September 30, 2008, Darling called his counterpart, Irish

Finance Minister Lenihan to complain. Noting that Ireland’s guarantee put them in an

“impossible position” since savers could shift their money from UK to Irish banks,

Darling bemoaned the lack of coordination (Darling 2012, 148). When there were reports that Germany had followed suit he found it particularly “surprising because the Germans set much store on announcements being made by Europe as a whole rather than by individual states” (Darling 2012, 148). Though Germany’s blanket guarantee turned out to be merely a rumor, Darling lamented that his poor working relationship with the

German Minister of Finance impeded his ability to coordinate at the European level.

The Chancellor also objected to a potential sale of Lehman Brothers to Barclays because it could lead to UK taxpayers bailing out a US bank. Darling had been working on a plan to recapitalize UK banks since September 26, 2008 but on Tuesday, October 7,

86 2008 the collapse of the Royal Bank of Scotland (RBS) precipitated a face-to-face with the major bank CEOs. On October 7, the Chancellor was attending an ECOFIN meeting in Luxembourg. He excused himself several times to receive updates on the stock price of

RBS. Flagged down from the corridor, Darling searched for a place to take a phone call from the RBS chairman after trading of RBS shares had been suspended. His staff demanded Kim Darroche, UK Permanent Representative to the EU, leave a small anteroom so he could use it to make calls. It became obvious to him that the capital needed to be issued immediately.

At 7:30pm that evening the CEOs of major UK banks met in Darling’s office, opposite Mervyn King, Governor of the Bank of England, Adair Turner, Chairman of the

Financial Services Authority, and Treasury staff. In contrast to the nearly jubilant behavior of most of their American counterparts when offered a similar deal, British bankers questioned the capital they are being offered and whether they in fact needed the amounts they were being forced to accept. “The bankers [were] exiled to a room next door (‘Can they hear what we’re saying?’ Darling asks) while the officials in the

Chancellor’s office discuss what to do. As Darling told the bankers when he sent them next door: this is the deal, there is no other deal, they had better get used to it or ‘God help us all’ ” (Martin 2013, 24). However, the CEOs continued to argue until 2:30 in the morning when they finally agreed to the capital. The next day the government announced that 50 billion pounds would be injected into UK banks.

Though the immediate response to the crisis occurred at the national level, many long term changes were made at the EU level. In 2011 the European Union changed the institutional structure and processes of its financial regulatory regime. As part of the new

87 European System of Financial Supervision (ESFS), the EU created the European Banking

Authority (EBA), European Securities and Markets Authority (ESMA), and European

Insurance and Occupational Pensions Authority (EIOPA). These institutions replaced the committee system that existed before the financial crisis. Collectively, they are responsible for macro-prudential oversight of the financial system. The European

Commission initiated the reform following the recommendations of a Committee of Wise

Men and supported by the European Council and Parliament. The European Parliament had been pressing for some time for a “move towards more integrated European supervision in order to ensure a level playing field for all actors at the level of the

European Union and to reflect the increasing integration of financial markets in the

Union” (Regulation (EU No 1093/2010), 12). The centralization of supervisory agencies under the European Systemic Risk Board (ESRB) in the post-crisis EU financial regulatory regime is documented in the Figure 9.

88 Figure 9: Post-Crisis EU Financial Regulatory Regime Map

Source: Author generated.

EIOPA and the European Commission have also changed EU pension policy by seeking to establish a pan-EU private retirement account scheme (Ellison 2012, 319). The

EU has used the open method of coordination policymaking style for pensions and other

89 elements of social inclusion and protection. In the open method of coordination the

Council sets policy goals and guidelines but member states are allowed to voluntarily transpose these guidelines into their national legislation and tailor their implementation.

Member states then meet to share best practices and learn from each other. In 2003 the

European Commission adopted what is commonly referred to as the European Pensions directive (officially the Institutions for Occupational Retirement Provision directive,

Directive 2003/41/EC) in an effort to allow firms to provide pan-European service.32 In

2014, the Commission revised the directive to allow cross-border activity as well as require additional supervision and professional management (European Commission

2014).

The European Commission action in pensions following the financial crisis is also an attempt to further integrate financial services: “The European Commission following the 2007/2008 financial crisis considered that there needs to be further regulation of EU occupational pension plans; it has therefore reviewed the present IORP Directive, abolished CEIOPS [Committee of European Insurance and Occupational Pensions

Supervisors] and introduced a new regulator with material powers, EIOPA [European

Insurance and Occupational Pensions Authority]” (Ellison 2012, 319).

The Commission has tasked EIOPA with creating a single market for private pensions. EIOPA is calling this product a “pan-European Personal Pension Product

(PEPP)” (European Insurance and Occupational Pensions Authority 2015). Commission support for a European-level private pension system is an example of ideological capture

32 “[P]ension funds can manage occupational pension schemes for companies established in another EU country, pan-European companies can have a single pension fund for all their subsidiaries throughout Europe” (European Directive 2003).

90 at the European level. The financialization of the social sphere section will address the significance of this development in the context of member state retirement account schemes.

Though the EU financial regulatory regime is still fragmented by member state variance in some policy areas, this is similar to the federalist approach to regulation in the

US. After the financial crisis, the EU introduced new financial regulatory institutions, proposed a pan-EU private retirement account scheme, and also proposed an FTT supported broadly by EU citizens if not national politicians. The significant breaks with the antecedent conditions were in policies and institutional processes and structures, with a general trend towards centralization of oversight at the EU level.

Financialization The previous chapter documented that a high degree of financialization in the US economy and in the US social sphere led to political securitization of financial institutions and regulatory capture of financial regulators by the financial industry. In this chapter the level of financialization in the EU and its impact on the EU financial regulatory regime are addressed. By establishing the degree of financialization in the EU and the relationship of the regulated to the regulatory regime one uncovers the motivation and influence of EU participation in the transatlantic financial regulatory regime. This section of the chapter will focus on the structure of the financial industry in the EU, its contribution as a percentage of GDP, and the role of financialization in the economic and social sphere.

The level of economic financialization varies across the member states but is most pronounced in the UK (Baker 2010, 648). The Anglo-American market model dominates in the UK and clashes at the EU level with the German or Continental model that is

91 favored in Germany and France, which is more closely tied to the real economy.

Financialization of the social sphere in the EU varies by member state, both because of the presence of both the Anglo-American and Continental models and because of different social welfare models.

Much like the US, some EU member states have significant contributions by the financial sector to their gross domestic products. Some member states even have financial sector contributions that are larger as a percentage of GDP than the contributions made by the financial sector to UK GDP. According to Drezner (2007), this suggests that financial industry actors’ regulatory preferences should be a priority for these states at the

EU level but that the small size of their economies makes those preferences less relevant than those of the UK. The UK has often been a standard-setter in financial regulation at the EU and international level because of its network centrality. This centrality, in turn, has contributed to the creation of the transatlantic financial regulatory regime, which will be discussed in the network salience section.

Financialization of the Economic Sphere The financial sector contributes most significantly to the economy of Luxembourg compared to other EU member states, as indicated in Figures 10 and 11. Figure 10 presents the contributions of financial and insurance activities as a percentage of EU member state GDP in 2013 and Figure 11 presents the same figures for 1995, 2009 and

2013. Luxembourg is a microstate that relies on finance and has status as an offshore financial center. The EU is host to other offshore and onshore financial centers, including

Dublin and The City of London (Levin 2002). Though Ireland and Luxembourg both have large contributions to their GDP from the financial industry, they do not necessarily have the same political power in influencing regulatory outcomes, which will be

92 discussed in the network salience section. This section will instead focus on the role of financialization narratives in three of the most powerful EU states: Germany, France, and the United Kingdom. This focus is because of the pivotal roles they play in the EU regulatory regime.

Figure 10: Financial and Insurance Activities as a Percentage of EU Member State GDP, 2013

Financial and Insurance Activities as a Percentage of GDP, 2013

Finland

Slovenia

Germany

Poland

Hungary

Sweden

Austria

Portugal

Belgium

Netherlands

Luxembourg 0% 5% 10% 15% 20% 25% Source: OECD Dataset, 1. Gross domestic product. Data for Ireland is from 2012, as 2013 figures are not available.

93 Figure 11: Financial and Insurance Activities as Percentage of EU Member State GDPs, 1995, 2009, 2013

Country 1995 2009 2013 Austria 5% 4% 5% Belgium 6% 5% 6% Czech Republic 3% 4% 4% Denmark 4% 6% 6% Estonia 2% 4% 3% Finland 4% 3% 2% France 4% 4% 4% Germany 4% 4% 4% Greece NA 4% 4% Hungary 4% 4% 4% Ireland* 8% 10% 9% Italy 4% 5% 5% Luxembourg 20% 23% 23% Netherlands 6% 7% 8% Poland 2% 3% 4% Portugal 5% 6% 5% Slovak Republic 6% 3% 4% Slovenia 5% 4% 4% Spain 5% 5% 4% Sweden 4% 4% 4% United Kingdom 7% 10% 7% Average 5% 6% 6%

Source: OECD Dataset, 1. Gross domestic product. *Figure for Ireland is from 2012 as data for 2013 are not available.

Some EU member states have tailored their taxation policies and incentives in order to attract financial sector firms and activities, adhering to policies that encourage finance-led growth. Though London had become a premier Eurodollar financial center in the 1960s and 1970s, Ireland and Luxembourg moved towards the financial sector in the late 1980s at the height of neoliberalism. Changing taxation policies and liberalizing finance in the 1980s and 1990s was viewed not only as an overall growth strategy, but in the case of Ireland was also pursued specifically as a way to create jobs (Kelly and

Everett 2004; Levin 2002, 50). Ireland established the International Financial Services

94 Center (IFSC) in 1987 amid a rapid growth of global financial activities in an attempt to attract some of the industry actors to its jurisdiction.

The United Kingdom embraced neoliberalism as Prime Minister Margaret

Thatcher led the charge towards deregulation and privatization (Ayres and Braithwaite

1992; McDonough and Kotz 2010, 94-95). This included a deregulation of the banking sector (Jessop and Stones 1992). The UK government has since relied on finance to fuel growth and has resisted attempts to tax the financial sector on the grounds that it would lead to a lack of competition and loss of GDP. Policymakers in the United Kingdom have also politically securitized financialization, warning that a financial transaction tax, proposed by the European Commission, would threaten pension funds, investment, job creation and growth in the UK (Crump 2013). Former Prime Minister David Cameron politically securitized finance repeatedly in his fight against the transaction tax, noting,

“[t]here were good innovative ideas that can help growth in Europe, but frankly there were some bad ideas too. A financial transaction tax is a bad idea. It will put up the cost of people's insurance, put up the cost of people's pensions, it would cost many, many jobs, and it would make Europe less competitive and I'll fight it all the way” (AFP

2012).33 Cameron’s remarks connect the economic sphere to the social sphere. He is asserting that by adopting the FTT the UK would lose its perceived competitive advantage in the financial services industry and this would lead to losses for average citizens.

Leaders in other EU member states, however, have challenged the desirability and sustainability of the financialization of the economy. The financial crisis was a turning

33 This position is shared by the Labour Party, whose Shadow Business Secretary Chuka Umunna has said that Labour will not support a financial transaction tax unless it applies to Wall Street as well (Coates 2013).

95 point that crystallized the opposition to financialization in countries adhering to the

German model. The German model maintains close ties between the banking and industrial sectors of the economy and limits securitization. Opposition to financialization manifested in Germany and France, which follow the German model. The German and

French banking systems became susceptible to not only the financial crisis but also the subsequent sovereign debt crisis because of increased trading and exposure to risk through trading activities and internationalization (Hardie and Howarth 2009). However, the German and French economies are still dominated by banks rather than non-bank financial institutions, the latter of which took on more risk through securities and fared less well during the financial crisis. Therefore, German and French resistance to securitization and the “limited extent of financialization of the German economy” complies with the German model (Engelen et al. 2008, 622).

The resilience of Germany during the crisis is attributed to the cautious German approach to growing the economy (Artus 2010; Caplen 2014; Rickards 2014). The

German economy began its process of financialization in the 1990s, later than the US and many EU member states, and the share of rentier income composing GDP steadily increased (Dunhaupt 2012). Despite this, the financial sector is not a large contributor to

GDP. The European confidence in this model and its seeming vindication during the financial crisis have led German politicians to assert a firmer and “unilateral” voice in the post-crisis international regulatory regime (Schneider 2010).34

In 2008 amid the onslaught of the financial crisis German Chancellor Angela

Merkel assigned blame for the financial crisis squarely to the US and UK and

34 In the network section the role that Germany plays in the EU financial regulatory regime will be addressed.

96 distinguished their approach to financial regulation from that of Germany. “Merkel criticised the fact that despite impending dangers, the financial markets had been allowed to continue operating in a ‘free-range’ and ‘matter-of-fact way’, and were ‘supported by the governments in Britain and the US’[…] ‘We did what we were supposed to do’ ”

(Quoted in Connolly 2008). In the same article Joachim Poss, a member of her coalition party, the Social Democratic Party of Germany (SPD), was quoted as saying, “ ‘[t]he

Americans cannot hold Germany responsible for its [sic] own failure and arrogance.’ ”

The SPD spent political capital on the creation of the third German grand coalition in

2013 to prioritize the financial transaction tax (FTT) at the EU level (Jennen and Parkin

2013).35

Strong rejection of financialization and the lack of financial regulation also came from French President Nicholas Sarkozy. In an address in September 2008 he explained the financial crisis to the French public:

“Basically, a certain idea of globalization is biting the dust with the end of a financial capitalism which had imposed its rationale on the whole economy and contributed to corrupting it. The idea of the all-powerful market which wasn’t to be impeded by any rules or political intervention was a mad one. The idea that the markets are always right was mad. For several decades we created conditions in which industry operated with the aim of achieving short-term profitability. The growing risks people were forced to take to obtain increasingly exorbitant profits were concealed. Remuneration systems were put in place which drove dealers to take more and more absolutely reckless risks. People pretended to believe that by pooling the risks they made them disappear. Banks were allowed to speculate on the markets instead of doing their job which is mobilize savings for economic development and analysing the credit risk. The speculator rather than the entrepreneur was financed. The rating agencies and speculative funds were left totally unsupervised. Firms, banks, insurance companies were forced to write down the value of their assets in

35 The term grand coalition (or GroKo in German parlance) in Germany refers to a coalition government between the Christian Democratic Union (CDU) with the Christian Social Union (CSU) and the Social Democrats (SPD). The CDU/CSU and SPD are the two largest parties in Germany. The two contemporary coalitions lasted from 2005-2009 and 2013 to the present (A.K. 2013).

97 the accounts at market prices which go up and go down at the whim of speculators. Banks were subjected to accounting rules which provide no guarantee on the proper management of the risks but which, in the event of a crisis, contribute to exacerbating the situation instead of cushioning the shock. It was a madness for which we’re paying the price today! […]We must find a new balance between the State and the market when public authorities the world over are being compelled to intervene to save the banking system from collapse. A new relationship must be established between the economy and politics through the development of new regulations. Self-regulation as a way of resolving all problems is finished. Laissez-faire is finished. The all-powerful market which is always right is finished” (Sarkozy 2008).

Sarkozy cautioned against blaming capitalism itself but rather considered speculation and financialization as a perversion of capitalism. This rhetoric from the head of the Union for a Popular Movement, a center-right party, was intended to fend off a turn in public opinion against capitalism and towards socialism. Though he calls for a new organization of the relationship of politics and the economy through new regulation, he presumes the same securitization of the financial system and its connection to ‘main street’ as his counterparts in financialized states: “Savers who have trusted our banks, companies, our country’s financial institutions won’t see their trust betrayed. They won’t pay for the possible errors of the executives and possible imprudence of the shareholders.

The State is here and the State will do its duty. I make a solemn promise this evening: whatever happens, the State will guarantee the security and continuity of the French banking and financial system” (Sarkozy 2008). The leader of a country following the

German model proposed a solution to the consequences of the financial crisis was to double-down by shoring up domestic financial institutions. After the crisis, EU member states pursuing finance-led growth and EU member states not pursuing finance-led growth had similar reactions to the financial crisis. This led to a centralization of

98 authority under the new European Systemic Risk Board (ESRB) and the pursuit of financialization at the EU level.

Financialization of the Social Sphere The previous section documented the political commitment in the EU to protect financial-led growth after the financial crisis. This section will show that though there has been uneven financialization in homeownership and retirement accounts in the EU, there is a general trend towards centralization and financialization in the social sphere.

The European Union is composed of 28 states and cannot credibly be treated in this or any analysis as having a unified, singular social sphere. However, this analysis does use the same indicators as the OECD to measure financialization. The indicators for the 28 member states and EU averages are compared, and then compared with those of the United States. This project also considers trends across member states. The

Continental social model has also credibly been contrasted with the Anglo-American model by other scholars, both as varieties of capitalism and as parallel models of social welfare (Hall and Soskice 2001; Ebbinghaus and Manow 2004; Hyman 2011; Schröder

2013). These models obviously impact the degree of financialization in homeownership and retirement systems.

Continental western European states have fuller social welfare systems than the

US system. Social insurance comes in the form of unemployment support, welfare support, and universal health insurance. The Open Method of Coordination, an EU regulatory policymaking mode in which broad outlines are set at the EU level and specific policy choices are made at the national level, is now being applied to social welfare policy (Scharpf 2002). Boeri and Sapir have developed a typology of European social models which attempts to categorize the policies of each member state (Boeri

99 2002; Sapir 2006). The UK has a place notably apart from the continental states, either as the epicenter of the Anglo-Saxon or Anglo-American model (Coates 1999). The following sections will consider the same two indicators as the US chapter: homeownership and retirement.

Homeownership Member states in the European Union have not prioritized home ownership incentives and mortgages tend to have higher initial capital requirements and longer terms for repayment than US mortgages (European Central Bank 2009). In the past twenty years however, the trend has been for increasing loan to value ratios and increased rates of home ownership in some EU member states.

The chart below presents the percentage of homeownership for the current 28 EU member states in 2013.

Figure 12: EU Homeownership, 2013

EU Homeownership Percentages, 2013

100.0 95.0 90.0 85.0 80.0 75.0 70.0 65.0 60.0 55.0 50.0 Italy Spain Malta Latvia France Greece Poland Cyprus Croatia Austria Estonia Finland Sweden Belgium Ireland* Slovakia Bulgaria Slovenia Portugal Hungary Romania Germany Denmark Lithuania Netherlands Luxembourg Czech Republic United Kingdom

European Union (28 Source: Eurostat 2013. *Ireland figure is for 2012 as figures for 2013 are not available.

100 Homeownership rates vary greatly across EU member states, peaking in Romania

(95.6%) and Lithuania (92.2%) and at the nadir in Germany (52.6%). The EU average is

70%. The high percentage of homeownership in Romania stems from two waves of privatization in which renters of state owned apartments were offered extremely low prices to buy their apartments (Constantinescu 2011). Privatization is one government policy which has led to differences in rates of EU homeownership across the EU. The UK has only recently experienced an uptick in homeownership rates, prompted by selling property to tenants in the 1980s. “It is clear that in the new member countries of the EU, privatisation of the housing stock has also been a very important and in some of these countries home ownership levels are very high. Indeed the highest rate of owner occupation appears to be in Hungary, where 90% of the stock is owner occupied. But depending in how the privatisations were dealt with rates can be much lower. In the

Czech Republic and Poland the rates are below the weighted average for the EU15 of

64% at 47% and 55% respectively” (Earley 2004, 28).

The trend towards increased homeownership has also been constant across nearly all EU member states. The chart below from Demographic Change and Housing Wealth:

Home-owners, Pensions and Asset illustrates the changes since the postwar period. Only

Greece and Slovakia have experienced decreased home ownership rates as a percentage of total housing stock in the period between 2002 and 2006-2009.

101 Figure 13: Post-War Growth of Homeownership Percentage Share of Total Stock by Year

Source: Doling et al. 2012, 27.

However, these figures obscure some of the detail about the relationship between homeownership and financialization; homeownership does not necessarily correlate with the use of financial products or services. Not all member states have high percentages of participation in the mortgage markets. Participation in the mortgage markets is highest in

102 the Sweden (61.4%), the Netherlands (60.3%) and Denmark (49.2%), showing some

convergence across the two dimensions of the social sphere as they are also among the

top six states with highest participation in private pension schemes. (Eurostat 2013) The

average of EU member state homeownership rates with a mortgage is only 27.2%.

Figure 14: EU Homeownership Percentages With and Without Mortgages, 2013

EU Home Ownership Percentages, 2013

100.0 90.0 80.0 70.0 60.0 50.0 40.0 30.0 Without Mortgage 20.0 10.0 With Mortgage 0.0 Italy Spain Malta Latvia France Greece Poland Cyprus Croatia Austria Estonia Finland Sweden Ireland* Belgium Slovakia Bulgaria Slovenia Portugal Hungary Romania Germany Denmark Lithuania Netherlands Luxembourg Czech Republic United Kingdom

European Union (28

Source: Eurostat 2013. *Ireland figures are for 2012 as 2013 data are not available.

Loan to value (LTV) ratios for home ownership in EU member states have been

increasing but most are lower than the LTV ratio in the US. The first figure below, Figure

15, demonstrates the breadth of typical LTV ratios in the Euro area and the second,

Figure 16, demonstrates the maximum LTV ratios allowed in the advanced member state

economies and in the US.

103 Figure 15: Typical Loan to Value Ratio for First-Time Euro Area House Buyer, 2007

Typical Loan to Value (LTV) Ratio for First-Time House Buyer, 2007

Malta Slovenia Italy Germany Portugal Spain Greece Euro area* Cyprus Belgium Finland Ireland Austria Luxembourg France Netherlands

0% 20% 40% 60% 80% 100% 120%

Source: European Central Bank 2009, 27. *Euro area includes only those states for which data are available.

104 Figure 16: US, EU Maximum Loan to Value Ratio, 2008

US, EU Maximum Loan to Value Ratio, 2008 Austria 80% Belgium 100% Croatia 75% Denmark 80% France 100% Germany 80% Ireland 100+% Italy 80% Netherlands 125% Portugal 90% Sweden 100% UK 110% US 100+% Source: IMF 2011: 117

Loan to value ratios are highest in those EU economies dominated by the Anglo-

American model of capitalism. The Netherlands has a typical lending rate of 101% despite a maximum possible ratio of 125% before the financial crisis; in 2011 the

Netherlands lowered the LTV to 110%. In 2010, Sweden also lowered its maximum LTV from 100% to 80%. The UK and Ireland also allow over 100% lending, in line with the

US. The US, UK, and Ireland have not altered their maximum LTV ratio after the financial crisis.

In European Union member states the deregulation of the mortgage markets and innovations in loan products have served some of the same functions as FHA policies in the US: expanding home ownership to low-income households.

“While each country moved to a more liberalized system, there is a large variation in what their systems offer. Overall, however, the innovations have increased the availability of mortgage loans, including changes in the type of the interest rate (such as variable rate mortgage and interest-only mortgages) and modifications of repayment structure and terms of the loan (such as introducing 30 years loans). A

105 consequence of these changes has been to make loans affordable for a wider range of households including those with low incomes who could not afford owner occupied housing earlier” (Doling et al. 2012, 34).

Government support for home ownership is also less prevalent in EU member states than in the US. In an IMF index formulated to measure government participation in the housing finance markets, the support offered in tax breaks to middle and low income individuals as well as subsidies or grants to new homeowners is considered. The index, available in Appendix 4, assigns points in several categories of government support, such as subsidies to first-time homebuyers. The sixteen EU member states included are

Austria, Belgium, Croatia, the Czech Republic, Denmark, France, Germany, Hungary,

Ireland, Italy, the Netherlands, Poland, the Slovak Republic, Slovenia, Spain and the UK.

The findings indicate that out of these EU member states and the US, the US had the strongest overall government participation in the housing market and was an outlier in a number of indices, including tax breaks, subsidies, and loan guarantees. Though it is paradoxical that European welfare-oriented states have less government support for home ownership than the US government, one potential explanation is that the US government has encouraged broad use of financial products to increase homeownership rates as a way to grow the economy. Carliner asserts that in the US “[m]any of the policies supporting homeownership were created as economic stimulus measures in response to the depression and subsequent recessions” but remained in place after the cyclical economic problems ended and “evolved into supports for home ownership” (Carliner 1998, 318).

This suggests the government supported lending to stimulate the economy in order to fuel finance-led growth, a move that is consistent with financialization ideology. Encouraging home ownership in the US, coupled with low LTV ratios, provides the finance industry

106 with fodder for new financial products. Explicit US government support for home ownership in the 1990s developed alongside securitization. In the EU, domestic and global securitization markets were smaller than those in the US and there was lower issuance of structured products (European Central Bank and the Bank of England 2014,

10). Simply put, securitization was not as common a practice in the EU as it was in the

US. In the US, securitization relied on the continued issuance of mortgages—even bad or

‘subprime’ mortgages. In the EU there was no continued demand for mortgages to securitize.

Retirement Accounts Differences in European social models can account for some of the differences across EU member state retirement policies. Public pension systems are a vital part of the social welfare system in countries following the Continental model and traditionally replace a high percentage of retiree’s pre-retirement earnings (Legros 2013, 1). This is in stark contrast to countries following the Anglo-American model, which charge lower fees for public pensions but also replace less pre-retirement income (Sun and Hu 2014, 59).

Notably some states supplement their public pension schemes with mandatory private retirement accounts. This is a form of state mandated financialization, not unlike the myRA accounts being promoted by the US government. The states with mandatory private retirement accounts are Denmark, Estonia, Netherlands, Poland, and Sweden.36

These mandatory private retirement accounts are one indicator of a strong government commitment to financialization of the social sphere.

36 The Organisation for Economic Cooperation and Development (OECD) distinguishes between public, mandatory private and voluntary pension schemes.

107 Figure 17 shows the percentages of wage replacement rates from public and private pensions in several EU member states as well as the US. “The gross replacement rate is defined as gross pension entitlement divided by gross pre-retirement earnings. It measures how effectively a pension system provides a retirement income to replace earnings, the main source of income before retirement. This indicator is measured in percentage of pre-retirement earnings by gender” (OECD 2016, (Gross pension replacement rates (indicator)).

The EU average, based on the 27 member states as of 2013 omitting current member state Croatia, does not include a measure of private accounts. Retirees rely more on private accounts than public pensions for retirement income in the Netherlands,

Denmark, and the UK and rely on them for significant percentages of their income in

Ireland, the Czech Republic, the US, Sweden, Slovak Republic, Estonia, and Poland.

Those states without government mandated private accounts but large reliance on private accounts are the UK and Czech Republic.

Public pensions in most EU member states account for a much larger percentage of retiree income than they do in the US and it may be for this reason that fewer people participate in private pension plans in the EU. Despite fundamental differences in the role of public pensions in the Anglo-American and Continental models, in nine EU member states private pensions account for at least 24% of retiree income replacement.

Economists promoted private retirement accounts as a safer alternative to public pensions since public pensions could be cut during public debt crises (Bovenberg and van Ewijk

2011). Some states mandated contributions to private pensions as a way to “boost” capital markets (Matlack 2015). This reliance on private pensions, and especially mandatory

108 private pensions, demonstrates that there is moderate financialization in the area of retirement accounts in some EU member states.

Figure 17: Gross Replacement Rate from Public and Private Pensions, 201337

Gross Replacement Rate from Public and Private Pensions, 2013

EU27 Spain Slovenia Portugal Luxembourg Italy Hungary Greece France Finland Belgium Germany Public Poland Private Estonia Slovak Republic Sweden United Kingdom United States Czech Republic Ireland Denmark Netherlands Austria

0 10 20 30 40 50 60 70 80 90 100 Percentage of Individual Income

Source: OECD 2013, Pensions at a Glance.

37 Data retrieved from Organisation for Economic Cooperation and Development Statistics, Pensions at a Glance 2013. Notably, these figures may fluctuate with the markets; in years with higher returns from private financial accounts payouts to retirees may increase and therefore increase the percentage of replacement from private accounts.

109 However, there is not a clear trend toward financialization of retirement schemes in the EU. A review of retirement account schemes reveals disjuncture across member states. Some member states have strong support for financialization, while other member states have made it more difficult for individuals to maintain private pension accounts.

After the financial crisis, support for financialized pension schemes changed in many member states and at the EU level. This response varied not only across member states, but between member states and the EU.

Member States Retirement Account Response Since the financial crisis several European states have faced public debt crises and have targeted retirement counts as a way to cut their budgets. Hungary enacted a series of reforms in 2010 to “force” citizens who had assets in mandatory private retirement accounts to convert back to using the public pension system (Feher 2010). The 2010 reform allowed Hungarians to elect to stay in the private retirement accounts but in doing so they would forfeit their public pensions to which they had also contributed. Only around 100,000 people elected to stay in the private schemes and those who did not had their funds “transferred” to the public fund (Krzyzak 2014). The Hungarian government used the transferred money from the private retirement account funds to pay budget shortfalls. In 2014 a new reform was introduced that would close the private funds and transfer the assets to the public pension funds unless 70% of Hungarians participated in and paid fees to private pension funds; this was an impossible hurdle as only 10% of

Hungarians continued to pay private pension funds following the 2010 reform (Dunai

2014). In 2014 Poland moved half of the assets in its private pension scheme to the public pension program and told contributors to the private accounts that their benefits would be paid by the public pension program (Matlack 2015; Sebastian 2015). In 2012 and 2015

110 Slovakia introduced reforms to allow people to opt out of previously mandatory private retirement accounts, citing the accounts’ poor performance (Matlack 2015; Krzyzak

2015).

The Hungarian, Polish and Slovakian governments have made efforts to reduce their citizens’ reliance on private retirement accounts managed by financial firms. Instead they have nationalized private retirement account funds and created incentives for citizens to rely increasingly on public retirement schemes.

European Union Retirement Account Response While Hungary, Poland and Slovakia have implemented reforms to move away from the financialization of retirement accounts, the European Union is moving towards the financialization of private retirement accounts. As mentioned earlier in the chapter, the European Commission has simultaneously instructed EIOPA to manifest a pan-

European private retirement account system. The Commission laid out this task in a 2012

White Paper. In the White Paper the Commission explains that a greater reliance on private retirement accounts is desirable partially because, “[…] there is a need to improve the quality of financial products for individual retirement savings not linked to employment, such as third pillar schemes and other financial products used to supplement the incomes of the elderly. Improving consumer information and protection is necessary to enhance workers' and investors' confidence in financial products for retirement savings” (European Commission 2012, 13). This demonstrates strong EU support for private retirement accounts exists despite some member states removing them from their national social welfare systems. The Commission proposes improving consumer confidence in and reliance on financial products as the solution to insecurity in public retirement schemes, demonstrating that it is doubling down on financialization of the

111 social sphere after the financial crisis. In contrast to the response by Hungary, Poland, and Slovakia, this indicates the EU has been captured by financialization ideology.

EU member state reliance on private retirement accounts varies significantly. The evidence indicates that there is a divide between member state governments who support financialization in retirement accounts and those who do not support financialization in retirement accounts. This divide and the way it is settled at the EU level are central to explaining why a transatlantic financial regulatory regime has emerged. The pursuit of

Anglo-American financialization at the EU level is not the result of a bottom-up, consensus of member states. It is the result of an intergovernmental negotiation in which some member states are more powerful than others. The European Commission instructed EIOPA to establish a pan-European private retirement account. EU participation in a transatlantic financial regulatory regime is predicated on shared transatlantic interests and desired outcomes. However, especially in the social sphere and retirement accounts, the EU is not monolithic. A transatlantic financial regulatory regime with harmonized or common standards can only emerge if Anglo-American financialized capitalism is pursued as a growth strategy at the EU level.

The next section will explain how Anglo-American financialized capitalism is pursued at the EU level despite the varying levels of member state support for financialization.

Network Salience This section will address how the financial regulatory regime is created at the EU level, and the EU financial regulatory regime’s relationship to the international regulatory regime. This section uses network analysis to identify the salience of the individual member states to the EU regulatory regime and the salience of the EU regulatory regime

112 to the international regulatory regime. Salience in this context is a product of financial activity, financial flows and interactions between states. This analysis indicates that financial regulation in the EU generally favors the Anglo-Saxon model of financialized capitalism and this is because of the United Kingdom’s position as the preeminent financial global center and a culture of consensus in decision-making. This will support this project’s argument that the transatlantic regulatory regime is being created to allow the EU and US to pursue finance-led growth strategies and to stave off competing regulatory regimes.

There are two regimes to consider in order to determine which member states are most salient to the creation of financial regulation, the domestic EU regulatory regime and the international regulatory regime. At the first level in the EU regime, member states compete to attract financial activities and influence regulation produced by the European

Council and European Commission. EU member states in engaging in these regulatory conflicts are usually divided into those practicing the Anglo-Saxon model and the

German model. At the second level, the European Union, alongside its member states, competes to set financial standards and attract financial activity. As a result of its network salience in the international financial regulatory regime, the United Kingdom plays a crucial decision-maker role in the EU financial regulatory regime.

The United Kingdom is a hub of financial service firms and financial flows and this gives its government network salience (Oatley 2013, 141-142). London is currently the top financial center in the world, followed by New York (Global Financial Centres

Index 2015). London was also the only financial center in the EU to crack the top ten. In

2014, Frankfurt fell from 9th to 11th place while Luxemburg rose from 11th to 12th place.

113 This position in the hierarchical network of global finance gives it power in the EU and international financial regulatory regimes.

The neighborhood in which most financial institutions operate in London is even called ‘the City’, a nickname for the county named The City of London. The Lord Mayor of The City of London, “supports and promotes the City as the world leader in international finance and business services” (The Lord Mayor 2012). The CityUK is a powerful organization that lobbies for financial industry interests located within London and the United Kingdom. It publishes reports about the concentration of the financial services sector in The City, financial services’ contribution to the UK and EU member state economies, and submits public comments to calls for suggestions on harmonization or regulation of financial services. Through its government and interest group, the financial services industry in The City has influenced the content of the regulatory regime at the UK and EU level and sought to play a role in the Transatlantic Trade and

Investment Partnership to influence the transatlantic regulatory regime (Hilary 2014, 26).

Because of London’s status as a global financial center, the government of the

United Kingdom is consulted about standards in financial regulation in the international financial regulatory regime and other states defer to the United Kingdom within international organizations on financial regulatory issues (Baker 2010, 650-651). Their deference is because the government of the United Kindgom has more experience with the most recent innovations in global finance and should therefore make greater contributions to global standards as a result of that experience. The United Kingdom is a

“pace setter” in financial regulation and its influence in previous EU negotiations on financial regulation “was underpinned by the size of its insurance market; the expertise

114 and effective coordination of national policymakers, and a state-of-the-art domestic regulatory model” (Quaglia 2011, 100). This is similar to the role that the United States government plays in the international regulatory regime (Baker 2010, 650-651).

London’s prominence and The City’s high level of organization as a civil society actor gave the UK government considerable influence at the EU level in the content of financial regulation. The strength of the German model and the corresponding power

Germany wields in economic and monetary policy should have theoretically challenged the influence of the UK in financial regulation. However, London’s status as a financial center and the importance of the UK in the international financial regulatory regime overwhelmed Germany’s influence.

In order to assess the role played by the UK government within the EU regulatory regime and the potential contribution of the EU regulatory regime to the transatlantic regulatory regime, a discussion of EU policymaking is required.

EU Policymaking While in the US until the financial crisis there was a seeming consensus in national political organs on the ideal of financialization-friendly regulation, in the

European Union, member states and the Commission compete to influence the scope of

EU policy and the content of financial regulation. The EU is not a state and a credible analysis of EU public policy cannot treat the EU as if it were a state. Understanding how

EU financial regulatory decision-making takes place will support this project’s assertion that Anglo-American financialized capitalism is a dominant impetus behind the transatlantic regulatory regime.

The European Council, the EU political organ composed of the heads of member state governments, is responsible for deciding political priorities of the EU as well as

115 extending new EU competences, while the European Commission, the technocratic executive departments, is responsible for implementing regulation through directives and legislative suggestions in ‘Community’ or supranational policy areas. The European

Parliament, the legislative body of the European Union, does not possess the power of legislative initiative and can only amend and vote on legislative proposals made by the

European Commission in Community policy areas. In intergovernmental policy areas, meaning areas in which exclusive competence has not been extended from member states to the EU, the Council is responsible for legislation. In the trade agreement process, the

Parliament is kept fully informed during negotiations, has the right to consent to the agreement, and implements any legislation necessary to carry out the agreement.

In the European Council decision making is formally by qualified majority vote

(QMV) which is a weighted system based on population. However, in practice many decisions in the Council are taken by consensus. This makes policymaking in the EU reliant on the agreement of every member state, which can privilege the preferences of outliers.

Consensus itself is an institution in the Union, a process with intrinsic value apart from the outcome. “The EU’s ‘culture of consensus’ is the result of the 40-year history of negotiations among the same partners and the acculturation of new members to those norms” (Heisenberg 2005, 68). With consensus as a common cultural norm, the tendency towards agreement is greater. At the Council meetings, member state representatives tend to discuss an issue until a consensus emerges even if there is an indication that a qualified majority vote would pass. Despite the increasing prevalence of qualified majority voting as the formal voting requirement on EU issues, consensus continues as the informal

116 practice. Furthermore, consensus has come to characterize the policy formulation process as well as the decision making process.

The practice of consensus in intergovernmental decision making ostensibly began with the 1966 Luxembourg Compromise. French President Charles de Gaulle objected so strongly to proposals for the extension of QMV by Commission President Walter

Hallstein that de Gaulle held up the reauthorization of the Common Agriculture Policy

(CAP), had the French representative to the European Economic Community recalled, and boycotted meetings for nearly six months. The “empty chair crisis” was only resolved when the Council decided that a decision to be taken under QMV would be postponed if a member state felt its important issues were at risk (Ginsberg 2007, 75-77).

“The Luxembourg Compromise […] represented the first major informal norm in EU decision-making procedures. […] Although the Single European Act in 1986 curtailed the already limited use of Luxembourg Compromise and extended QMV into many other areas of EU legislation, the informal norms spawned by the Luxembourg Compromise persist to this day. Most decisions continue to be made by consensus rather than by voting” (Heisenberg 2005, 68).

Currently, consensus is still present by practice in the decision-making phase and culturally and procedurally in the policy formulation phase.

Consensus in the Decision Making Phase In supranational intergovernmental decision making, the Council practice of consensus is significant because it breaks from the formal requirement of qualified majority voting. Another feature of the EU consensus-based system that takes place in earlier stages of the decision making is accommodation politics. Based on the accommodation model of compensation to the ‘losers’ of a proposal, the reiterated games

117 of EU Council conferences have built enough trust and enough opportunities for the

‘losers’ to be promised either compensation or concessions on another issue or later conference (Bogaards and Crepaz 2002). These ‘accommodations’ facilitate consensus on otherwise thorny issues, and are not that different from traditional bargaining within a normal democracy’s legislative branch. What is unique is that this takes place on the intergovernmental level between member state officials and not between members of the legislative branch.

Consensus in Policy Formulation Therefore the contrast between the rarely used formal decision making mechanisms and the practice of consensus indicate that the EU does indeed have a

‘culture of consensus’ which dominates the entire policy making procedure. An aversion to voting, and the absence of dissent in decision making, are contrasted with competition in the agenda setting process.

Since the European Parliament does not have the power of legislative initiative, the Commission legislates in supranational, Community issues. Legislative suggestions and directives are issued by the European Commission, which is organized by functional

Directorate-Generals or DGs for short. Actors in the Commission are already meant to be devoid of national interests and acting in the name of the Union. They work towards common union goals and formulate policy as ‘technocrats’. However, some DGs are considered to be biased towards the Anglo-Saxon model, including the former DG

Internal Market and Services (Quaglia 2007, 278). They also compose and host the expert groups which will be discussed in the next section who are consulted on proposed regulation.

118 After a proposal is presented by the Commission and before it reaches the

Council’s formal decision-making stage, it is wound through the intermediary policy process. In the EU, this institutional process is known as comitology.38 The working groups and committees hash out initial differences, and the member states’ Committee of

Permanent Representatives (COREPER) settles all but the most important issues before the responsible Council formation meets.39 Emblematic of its importance in the formation process, COREPER sits in two formations: COREPER I assembles the member states’ deputy permanent representatives and settles technical issues while COREPER II consists of the permanent representatives who are tantamount to ambassadors and deal with the meatier issues—political, economic and institutional questions. These permanent representatives are all located in Brussels and maintain regular contact on pressing issues which would be otherwise difficult to achieve across 28 geographically-dispersed member states. However, this very commitment to the EU may render them agents of the

Union and not of their member states, and therefore, they may be more committed to reaching consensus than defending particular interests of their home countries

(Moravcsik 1991). Hooghe (2005) has found evidence that time in the European

Commission socializes European officials to be ‘Europeanized’ and support supranationalism. The Commission has proposed more restrictive financial regulation

38 “The term ‘comitology’ is shorthand for the way the Commission exercises the implementing powers conferred on it by the EU legislator, with the assistance of committees of representatives from the EU Member States. [..] ‘Comitology committees’ assist the Commission in executing its implementing powers by giving an opinion on draft implementing measures before they are adopted. They include representatives from all EU Member States and are chaired by a Commission official” (European Commission “Comitology Register FAQ”); “Well over 200 committees have either advisory, management or regulatory functions with regard to the powers delegated to the Commission in the Treaty to implement legislation enacted by the Council or the Council and the EP [European Parliament]” (Ginsberg 2007, 173).

39 The Council meets in different formations. For example, if the finance ministers of the member states are required to address a particular issue the Economic and Financial Affairs Council (ECOFIN) will meet; ECOFIN is a formation of the Council composed of member state economic finance ministers.

119 than the Council has been willing to adopt. Examples are of this regulation are presented later in this chapter.

National Positions and Multi-level Games As individual member states know that they will face the test of achieving consensus and not majority at the intergovernmental end stage, their individual positions are often ‘self-censored.’ One can contrast this multi-level game process with that of inter-state negotiations in trade rounds. In traditional international organization negotiations, each state formulates its own ‘win-set’ parameters, forms coalitions with states with similar win-sets, and identifies strategies to advance its agenda. These different win-sets are pursued in the framework of negotiations. In preparation for EU

Council conferences, member states also formulate their agendas, however, the culture of consensus leads them to only consider win-sets which have a feasible chance of achieving consensus. This self-limiting behavior leads to a smaller potential overlap among the 28 member state win-sets. The constant temperature-taking amongst EU member states in their Permanent Representation delegations allows each member state very accurate knowledge of what the potential group compromise, or consensus, will be.

This is in contrast to states in international negotiations which usually push their own favored agendas even if they are ultimately likely to accept an outcome further in the

‘center’.40

This means that initiatives that would regulate financial services deemed too strongly in favor of either the German or Anglo-Saxon model can be effectively blocked

40 Although the institutional arrangements between member states makes the comparison with states in international negotiations problematic, the distinction in the breadth of agendas or solutions initially considered is necessary to understand the potential loss that could result from a narrower initial overlapping win-set.

120 by any single state. As mentioned in the beginning of the chapter, there was very little effort before the Financial Services Action Plan (FSAP) in 1999 to harmonize financial services in the EU. Member states might have anticipated the conflict in desired regulatory outcome or preferred their own system and therefore avoided harmonization at the EU level.

The financial crisis, and subsequent sovereign debt and Euro crises, have altered the member states’ calculations and Commission’s suggestions. There is now a willingness to engage in conflict in the Council over the content and direction of the EU regulatory regime and challenge the dominance of Anglo-American financialization. One example on the point is the financial transaction tax discussed in the first section of this chapter. The FTT had broad popular support, even in member states with a high degree of financialization, and was proposed by the European Commission. Despite this, ministers in ECOFIN could not reach a unanimous agreement. As a result, the enhanced cooperation procedure was used to move forward with the participation of some member states. Without the participation of the UK in the FTT, member states have wavered in their commitment to the establishment of the FTT.

However, challenges to the dominance of Anglo-American financialization at the

EU level have been largely unsuccessful. The next section will present evidence that EU institutions have been captured by industry interests and actors, and that the crisis has allowed for greater penetration of industry actors.

Relationship of Regulators to Industry This project argues that US and EU policymakers are captured by the ideology of financialization and that this regulatory capture is related to increased access for financial industry actors. This section will demonstrate this capture at the EU level. Before and

121 after the financial crisis scholars and consumer groups have accused the EU institutions of promoting financialization and being captured by financial industry actors (Alter-EU

2009; Petry 2014). The European Union suggests it seeks a broad participation of stakeholders and yet it has been assailed by groups like Corporate Europe Observatory

(CEO) for having a revolving door of regulators similar to the US (Corporate Europe

Observatory 2014a). There is evidence to substantiate these claims. Officials who take jobs in the private sector within two years of leaving the service of the Commission must inform the Commission and gain approval. This procedure is supposed to prevent the revolving door phenomenon but in 2014 the EU Ombudsman, Emily O’Reilly, investigated 54 files. In 2014 O’Reilly “found deficiencies in how decisions on

‘revolving doors’ cases are reasoned and documented” that posed a potential ethical issue

(European Ombudsman 2014). O’Reilly also called for greater transparency by publishing the names of officials who take positions in industry after stints in the

Commission.

In July 2016, Goldman Sachs, a financial firm, announced it had hired former EU

Commission President Jose Manuel Barroso. His position in London will involve advising the firm on the UK’s exit from the EU following a UK referendum to leave the

EU (Noonan 2016). This is a prominent example of the revolving door at work in the EU.

As Corporate Europe Observatory notes, “[o]ne in three (9 out of 26) outgoing commissioners who left office in 2014 have gone through the 'revolving door' into roles in corporations or other organisations with links to big business” (Corporate Europe

Observatory 2015). One former Commissioner, Siim Kallas, continues as a special advisor to current Commissioner Dombrovskis despite industry ties (Panichi 2015).

122 Following the financial crisis, institutional changes to deal with financial regulation have not been limited to new policies. The European Commission for 2014-

2019 split the portfolio of the previous DG Internal Market and Services into three sections; one of these sections creates a new portfolio of Financial Stability, Financial

Services and Capital Markets Union. This change indicates that the EU Council perceives the integration of financial services and the creation of a capital markets union to be priorities worthy of a new Commission post. The Commissioner for the post is Lord

Jonathan Hill from the UK, a former lobbyist who founded Quiller Consultants which served several finance industry clients including TheCityUK and HSBC (Singleton

2011). His appointment indicates two potential instances of regulatory capture. First, as

Hill has represented the financial industry, his appointment represents the capture of EU financial regulation by the financial industry. Second, as Hill has worked extensively for

TheCityUK his appointment suggests the capture of EU financial regulation by

TheCityUK.

In order to confirm his appointment, EU Commission President Juncker had to remove responsibility from his portfolio:

“In recent private meetings in Brussels, the incoming European Commission president has made clear that Lord Hill will have remuneration policy carved out of his job as EU commissioner overseeing Europe’s financial sector, according to two people familiar with the matter. The decision from Mr Juncker comes as Europe’s banking watchdog prepares to clamp down on allowances designed to sidestep the EU bonus cap, in an intervention next month that threatens to throw pay policies in the City of London into turmoil. […] Mr Juncker’s decision is highly political and emerges as Socialist and Green MEPs issue threats to veto Lord Hill’s appointment over fears he will bend to City demands” (Barker 2014).

Members of the European Parliament were not merely concerned with

Commissioner Hill’s involvement in setting bonus caps. Indeed Members of the

123 European Parliament asked Lord Hill about how his home country’s policies and attitudes towards finance would impact his activities as Commissioner. On the question of his independence from the financial industry, he explained he intends to comply with the code of conduct for Commissioners and has no conflicts of interest. Hill affirmed his commitment to promote the European interest above his national interest and explained he would be would be willing to take action against the UK if necessary: “If a Member

State does not comply with EU rules, or tries to circumvent them, I will ensure that full use will be made of the various enforcement tools available. […] I will promote action by the Commission, first through EU pilot procedures, and if necessary with formal infringement proceedings. As Guardian of the Treaties I will not hesitate to take recourse to these measures should the integrity of the legal framework be at stake” (Hill 2014, 5).

Conclusions Despite the decentralized nature of many aspects of the EU financial regulatory regime, after the financial crisis there has been a trend towards centralization in supervision and regulation of financial activities. This chapter presented evidence that the financial crisis of 2007-2009 was a critical juncture in the EU financial regulatory regime that prompted changes in its institutional procedures and structures as well as policies.

The financial crisis did prompt a sharp confrontation of different member state ideas about the role of financialization but the regime has continued to be dominated by

Anglo-American capitalism and the ideology of financialization. This dominance is because of the network salience of London in the EU and international financial regulatory regimes and is evidenced by the weak participation of EU member states in the financial transaction tax, the Commission pushing EIOPA to establish pan-European private retirement accounts, and by regulatory capture in the EU Commission. The

124 alignment of the EU and US financial regulatory regimes and the changes in the international financial regulatory regime stemming from the financial crisis prompted institutional changes to the transatlantic financial regulatory regime.

125 Chapter 4: The International Financial Regulatory Regime and the Transatlantic Financial Regulatory Regime The Financial Crisis as a Critical Juncture in the International Regulatory Regime In Chapters 2 and 3 I demonstrated that the financial crisis was a critical juncture for both the US and EU that led to changes in the institutional structures and processes and policies of their financial regulatory regimes, This restructuring, coupled with the ideology of financialization and a strategy of finance-led growth, are the internal drivers of change in the transatlantic financial regulatory regime. However, this project argues that the international regime changes also caused a change in the institutional processes of the transatlantic regime. This chapter will document that the financial crisis was also a critical juncture in the international regulatory regime by providing evidence of institutional structural and procedural changes in the International Monetary Fund and the

Group of formations. The increased voice and vote participation of emerging market economies posed a threat to the dominance of the US and EU, which further motivated them to create a transatlantic financial regulatory regime. Creating this regime required the EU and US to overcome divergent regulatory approaches.

Financial and subsequent economic crises have been studied as moments precipitating policy learning and dramatic policy change. Eichengreen (2002),

Kindleberger and Aliber (2011) and Reinhart and Rogoff (2011) address the repeated financial crises as cyclical and representative of a failure by policymakers to learn lessons from previous crises and establish enduring policy changes. Gourevitch (1986) also studies the cyclical nature of international economic crises and uses an analytic framework that considers them as “points of choice” (10). An edited volume, Moments of

Truth: The Politics of the Financial Crisis in Comparative Perspective, published in 2013

126 contains scholarly contributions which analyze the financial crisis as a critical juncture in several institutional and national contexts (Panizza and Philip 2013).

The 2007-2009 financial crisis once again demonstrated the principle of contagion, the interconnectedness of states’ economies, and the need for global financial reform. A crisis that originated in a housing bubble in the US had a ripple effect through major financial institutions in other states and impacted global financial markets.

Increased financial integration contributed to the “amplification and global spread of the financial crisis” (Claessens et al. 2010, 1; Ozkan Unsal 2012, 29).

The financial crisis was also unlike others in recent memory because it was

“triggered by problems in the financial system of the mature economies” (Ozkan Unsal

2012, 5). The crisis spread in the most financialized economies first: the US and UK

(Ozkan and Unsal 2012, 4). Emerging market economies experienced a “relatively short- lived” and less dramatic version of the crisis, particularly markets with less exposure to financialized assets like mortgage backed securities (Ozkan and Unsal 2012, 29).41

The financial crisis presented an opportunity to revise the international financial regulatory regime. Much of the international financial regulatory regime was established soon after the Second World War. Europe and the US cooperated to establish the Bretton

Woods system after the Second World War. The Bretton Woods institutions were a part of the “postwar liberal democratic order” (Ikenberry 1996, 84). This postwar economic system was characterized by embedded liberalism. Embedded liberalism entails support for multilateral free trade as long as governments can provide social welfare protections and protections against unemployment. As Ruggie noted, “the essence of the embedded

41 European emerging markets were some of the hardest hit because their economic expansion had been largely externally funded (Xafa 2010, 479).

127 liberalism compromise [was]: unlike the economic nationalism of the thirties, it would be multilateral in character; unlike the liberalism of the gold standard and free trade, its multilateralism would be predicated upon domestic interventionism (Ruggie 1982, 393).

State intervention was used to “secure domestic stability” (Ruggie 1982, 394). Embedded liberalism allowed Europe to develop the welfare state at the same time it benefitted from market-opening multilateralism. Through economic contributions and structural governance power, the US and European countries dominated the Bretton Woods institutions.

Before the financial crisis, the United States enjoyed a veto power in the principal international financial institution, the International Monetary Fund (IMF) and several

European countries had quota voting shares disproportionately large compared to their populations and contributions. The Group of 7, or G7, was an ad hoc group of countries that coordinated international financial reform.42 Except for Canada, Japan and the US, the members of the G7 are all European Union member states.

After the financial crisis the IMF altered its voting shares and governance structure and the Group of 20 (G20) launched the Financial Stability Board.43 The G20 was established after the Asian financial crisis of 1997-1999 to shore up international financial stability but did not play a significant international role until summits were established after the financial crisis.

The financial crisis revealed the insufficiency of existing monitoring and surveillance efforts by the international financial institutions and specifically the IMF.

42 The members of the G7 are Canada, France, Germany, Italy, Japan, the United Kingdom, and the United States. Since 1981, the European Union has also been a nonenumerated member of the G7. (Laub 2015) 43 The member states of the G20 are Argentina, Australia, Brazil, Canada, China, France, Germany, India, Indonesia, Italy, Japan, Republic of Korea, Mexico, Russia, Saudi Arabia, South Africa, Turkey, the United Kingdom, the United States and the European Union.

128 First, the IMF’s monitoring efforts were primarily directed towards monitoring the developing world or previously unstable economies rather than the West and therefore the IMF did not provide an early warning to the crisis in 2007-2009. Second, the monitoring system was largely reliant on states’ establishing and accepting IMF legitimacy. In 2005 as a senior advisor for the IMF, Peter Isard recommended improving the quality and impact of IMF surveillance to shore up the international financial system.

He recommended linking the ability of countries to borrow to their previous implementation of policy recommendations (Isard 2005). Miranda Xafa, a former member of the IMF’s Executive Board, summarizes the failures in the existing reporting mechanisms meant to ensure global financial stability:

“The Fund’s Global Financial Stability Report (GFSR), published semiannually since 2003, assesses key risks facing the global financial system highlighting policies that can help mitigate systemic risks and enhance financial stability. In the run-up to the crisis, the GFSR warned about rising credit and market risks associated with the growth in subprime mortgages embedded in complex, hard-to-price structured products (IMF 2006 and 2007a). Similarly, the World Economic Outlook (WEO) flagged some early concerns about the risks of house price bubbles in the United States and the dangers from large current account deficits in emerging Europe (IMF 2007b). However, the focus of this advice was not sharp enough to prompt policy action, and policymakers in the still- booming global economy were less receptive to the warnings. The fact that the crisis originated in the advanced countries, normally outside the purview of the Fund’s crisis prevention efforts, contributed to complacency. A more evenhanded surveillance would have enhanced the Fund’s effectiveness and legitimacy by bringing about a better balance between peer protection and peer pressure” (Xafa 2010, 467-7).

Despite warnings about the housing market bubble and current account deficits, the US and EU continued their pursuit of growth driven by financialization. Warnings were not themselves enough to prompt policy change. During the financial crisis the IMF began to provide recommendations to policymakers and regulators.

The revision of the IMF’s role, as well as most of the revisions of the Financial

Stability Board, originated with Group of Twenty (G20) action (Fratzcher and Reynaud

129 2011). Ordinarily the G7 would make these decisions but the G20 was increasingly relied on to coordinate a response to the financial crisis of 2007-2009 because of the extent of contagion (Smith 2011, 5-6). The G20 group, itself established following the Asian financial crisis in the late 1990s, used its 2009 and 2010 meetings to coordinate an international response to the financial crisis. The meeting in 2009 was the first time that there was a heads of government level meeting of the G20. The financial crisis directly resulted in increased membership of the Group of number formation responsible for deciding the contours and content international financial regulatory regime. This eliminated the previous structural power enjoyed by the US and EU member states as members of the more exclusive G7.

The members of the G20 agreed that the IMF should have a larger role in financial stability surveillance and also created a new no-conditionality attached, quick loan called Flexible Credit Line for qualified members with strong economies and sound policies.44 The IMF redefined its “function in the global financial system” as surveillance

(Fratzcher and Reynaud 2011, 405).

In the middle of the financial crisis in 2008 and after a global recession in 2010, the IMF embarked on a reform program. The quota share system, which assigns votes to states, was reorganized to give more voting power to emerging market economies. In

2008, the IMF adopted the Quota and Voice Reforms. These reforms increased the voting shares for 135 “dynamic countries” for a “cumulative increase in quotas” of 11.5 percent

(International Monetary Fund 2008). In 2010 the agreed reforms included shifting 6

44To qualify a member country “Has very strong economic fundamentals and institutional policy frameworks [,] Is implementing—and has a sustained track record of implementing—very strong policies [,] Remains committed to maintaining such policies in the future” (International Monetary Fund 2015).

130 percent of shares from over-represented states to “dynamic emerging market and developing” states and making Brazil, China, India, and Russia “among the top ten largest members in the IMF” (International Monetary Fund 2016). The structure of the executive board also changed to be composed entirely of elected, rather than some appointed, board members and “advanced European countries […] committed to reduce their combined Board representation by two chairs” (International Monetary Fund 2016).

Notably the 2010 quota share reform removes the US veto power in the IMF, which it held de facto with its large quota share.

The financial crisis challenged the existing order of power within the international financial regulatory regime and the institutional structural and procedural changes to the regime threatened the dominance and reduced the structural power of the European

Union and United States within its institutions. The changes transferred power directly from Europe and the US to emerging market economies and developing states (Rato

2011, 89). They also challenged the “American model of global capitalism” (Oatley et al.

2013, 134). At the G20 summit in November 2008 “under the pressure of the international financial collapse of 2007-2008, and the proximate pressure of the non-G7 economies in the room, the status quo powers of the United States and Europe agreed that additional changes in voice and vote were needed” (Griesgraber 2009, 180).

The financial crisis of 2007-2009 also impacted the balance of power in the global economy. According to Niall Ferguson and Moritz Schularick, the financial crisis also prompted an end to Chimerica. Chimerica is a term Ferguson and Schularick use to describe the economic relationship of China and America that created a “world economic order that combined Chinese export-led development with US over-consumption” (2009,

131 2). They assert Chimerica threatened Europe’s place in the global economy and the Euro

(2009, 4, 24, 25). The end of Chimerica was an opportunity for the US and EU to collaborate and create a new world economic order.

Rickards has controversially argued that after the financial crisis the EU is actually in a stronger position in the global economy than the US and will become the

“world’s economic superpower” over the next ten years (Rickards 2014, 136). Rickards bases his assessment on the strength of the Euro and the German economic model (2014,

125-137). This position contrasts sharply with the reality of the Eurozone and fiscal debt crises the EU has experienced and his assessment does not consider the potential negative economic impact of Brexit on the EU.

The financial regulatory regime cannot be separated from broader economic cooperation because financial services are one of several sectors of the economy routinely included in international agreements and dialogues and because financialization has been used to grow economies. Financial services have been addressed in international trade negotiations in the World Trade Organization (WTO), bilateral trade agreements, and the Organisation for Economic Co-operation and Development (OECD), as well as institutions designed to harmonize financial services regulations. The inclusion of financial services within international trade agreements follows a neoliberal institutionalist logic because the EU and US are establishing institutions with the greatest possibility to produce their desired outcomes. The WTO is an established multilateral forum with enforcement mechanisms that could address financial services and set global regulations. However, the US and EU in particular have ample opportunity to forum shop

132 for a venue likely to produce their desired outcomes.45 Transatlantic cooperation and competition in the institutions of the international regulatory regime, and particularly in the WTO, have also shaped their joint decision to address financial regulatory policy in exclusive transatlantic institutions, such as the Financial Market Regulatory Dialogue

(FMRD) and the TTIP.

The focus on international financial regulatory cooperation within intergovernmental meetings about economic cooperation is partially a result of the process of financialization. As several industries rely on finance in order to generate profits and as governments rely on finance to grow gross domestic product, financial regulatory cooperation to avoid arbitrage losses becomes a priority within existing institutions designed for international economic cooperation. Industry actor groups and multinational corporations are also essential to prioritizing financial regulatory cooperation and have existing influence in organizations like the WTO through their national advisory committees, such as the U.S. Industry Trade Advisory Committee

(ITAC).

Transatlantic Cooperation The first section below will survey the steps taken in institutional building and the evolution of EU-US economic cooperation since 1945 because several of these institutions can be used to demonstrate the trends in cooperation and competition between the US and EU. With different financial regulatory standards, ordinarily the EU and US would compete, but after the financial crisis they are attempting to build a transatlantic

45 One excellent example is intellectual property rights. The EU and US have forum shopped several international organizations in order to find an appropriate venue (Eimer and Philipps 2011). Ultimately the EU and US formed the Transatlantic Intellectual Property Rights Working Group (TIPRG) which seeks compliance in intellectual property rights cases from third states.

133 financial regulatory regime. The second section will review the differences in the transatlantic regulatory regime before and after the financial crisis to demonstrate that the financial crisis was a critical juncture that produced a transatlantic financial regulatory regime.

Post-War Transatlantic Cooperation: From Supportive to Competitive The post-war cooperation of Europe and the US was focused mainly on building international economic institutions and rebuilding Europe; however, they also cooperated bilaterally and within international economic institutions. As discussed earlier in this chapter, European states and US cooperated to create the Bretton Woods institutions to extend a Western liberal democratic order.

Following the Second World War the US offered economic aid to Western

European countries under the guise of the European Recovery Program (ERP), more commonly known as the Marshall Plan. This aid was one of many factors that supported

European integration and institutionalization. The Organisation of European Economic

Cooperation (OEEC) was established in 1948 to supervise the allocation and disbursement of the Marshall Plan aid (Organisation for Economic Co-operation and

Development).46 In the fall of 1949, the members of the US administration reconsidered the aid program because they were concerned that the money was “insufficiently directed towards economic integration” (Organisation for Economic Co-operation and

Development). Under pressure from the US, the OEEC made trade liberalization a priority and as a result in 1950 60% of private intra-European trade had been freed

46 The original members of the OEEC were Austria, Belgium, Denmark, France, Greece, Iceland, Ireland, Italy, Luxembourg, Netherlands, Norway, Portugal, Sweden, Switzerland, Turkey, United Kingdom, and Western Germany (represented by both the combined Bizone and the French occupation zone).

134 (Organisation for Economic Co-operation and Development). The OEEC also attempted to liberalize capital flows through its Committee for Invisible Transactions. After the

Treaty of Rome established the European Economic Community in 1957, the OEEC was retooled and launched as the Organisation for Economic Co-operation and Development

(OECD) in 1961.

The European Economic Community (EEC), an antecedent to the European

Union, had a stated goal of integrating the economies of the member states through the

European Common Market. The United States supported the EEC because of the political importance of European economic integration despite the fact that it would lead to discrimination against American exporters (Brown 2003, 100). The US also supported

European economic and political integration as part of the liberal democratic order because it offered a powerful counterweight to communism during the Cold War

(Ikenberry 1996, 88-91).

Relations and negotiations between the EEC and the US were central to the other pieces of the post-war institutional infrastructure, including the General Agreement on

Trade and Tariffs (GATT). Signed in 1948, the GATT was a multilateral agreement that sought to regulate trade with principles of reciprocity and mutual advantage. The relationship of the EEC to the US was central to the early GATT negotiation rounds.

“The US Under Secretary of State Douglas Dillon, for instance, specifically launched the so-called Dillon Round in the GATT ‘to keep the Community's common tariff as low as possible’ (Dillon, 1957, 914)” (Devuyst 1995, 2).

While successive American administrations through the 1960s were largely supportive of European economic integration as a means to create geopolitical stability

135 and strong allies, as the European Economic Community began to confront the US in

GATT rounds the attitudes of the US administration and Congress shifted (Coppolaro

2013). In the 1970s, the US became sensitive about its trade balance and the EEC was increasingly perceived as a closed community providing unfair preferences and subsidies to its members (Devuyst 1995, 3). The US support for European project waned and the

US began to confront the EEC about potential conflicts between EEC regional arrangements and commitments to the GATT regime. Following the improvements made to the GATT dispute settlement process during the Uruguay Round in the late 1980s, the

US brought several cases against the European Union.47 Since 1995, the EU and US have launched 51 complaints against one another, demonstrated in the chart below (World

Trade Organization).48 In the dispute settlement cases counted below, the complainant

(either the US or EU) is the initiator of the dispute settlement procedure and the respondent is the other.

47 After the Maastricht Treaty of 1993 the European Economic Community became known as the European Union and the Lisbon Treaty of 2007 established the legal personality of the European Union, replacing the European Communities. The new legal personality allows the European Union to be a treaty signatory and to be the named member of international organizations. These successive rebrandings reflect the progressive integration and institutionalization in not only economic policy areas but also social and judicial affairs committed by member states. 48 This chapter will not attempt to detail the cases within the World Trade Organization Dispute Settlement Body between the US and EU as there is already a broad scholarship detailing the challenges to and participation of the European Economic Community, then European Community, and then EU within the GATT and WTO. See Petersmann and Pollack 2003 and Ahearn 2006.

136 Figure 18: EU-US WTO Dispute Settlement Complaints since 199549

Complainant

European Union 33

United States 19

Total 52

Source: World Trade Organization 2016. “Find disputes cases.”

These figures are indicative of some significant trends in the transatlantic economic relationship. First, the EU and US have used international institutions as fora to host competitions between their different regulatory regimes and even regulatory traditions. The beef hormone dispute between the US and EU is one such example.

Following a European Commission health and safety regulation in 1989 banning imports of beef treated with growth stimulants, the US brought a complaint against the EU for blocking imports of its beef that had been given hormone shots (Johnson and Hanrahan

2010). The EU decision was followed by several other countries’ also banning meat treated by hormones. Many instances of transatlantic regulatory competition manifest because of the different regulatory traditions of the EU and US.50 A specialist in the

Congressional Research Service identified regulatory policy conflict as one of the three sources of most trade conflicts between the EU and US, alongside traditional producer protection and foreign policy clashes. (Ahearn 2006) The international regulatory regime

49 For the purposes of this chart, EU represents both European Community and European Union. This chart does not include US complaints brought against specific EU member states. Data retrieved from the World Trade Organization. 50 Michael Rogers of the European Commission’s Bureau of European Policy Advisors summarizes the connection thusly: “The US and the EU have disagreed over the regulation of a number of health and environmental risks, from genetically modified foods to climate change to beef. Underlying these specific controversies has been a larger debate, namely, how regulators should act in the face of uncertainty about risk” (Rogers 2002).

137 was used to arbitrate clashes between the EU and US regulatory regimes in the 1990s and early 2000s. Regulatory conflicts are embedded in social contexts and are more difficult to resolve than traditional tariff barrier clashes, which may explain why the EU and US relied on the dispute settlement mechanism rather than transatlantic regulatory dialogues.

EU and US: Divergent Regulatory Approaches The European Union and United States are often characterized as having two different regulatory traditions which would make their regulatory cooperation unlikely.

However, the financial crisis changed the incentives to cooperate by altering EU and US power in international financial regulatory regime. This section demonstrates that the EU and US overcame divergent regulatory approaches in order to create a transatlantic financial regulatory regime.

The EU regulatory approach applies the precautionary principle and the US is generally more responsive to demonstrated negative effects (Vogel 2001). The basis of this difference is in an approach to managing risk through regulation. The precautionary principle requires goods or practices to be proven safe before they are allowed in the marketplace through proactive regulation. The European Commission has issued a number of health and environmental regulations on the basis that products may pose a risk. One example is the restriction of genetically modified organisms (GMOs). In food products, the United States regulates by restricting access once something has been demonstrated to pose a risk. However, Wiener and Rogers note that the US has also applied the precautionary principle at times, and has a more conservative approach to risk management than the EU in certain product areas (2002).

The other major area in which their regulation differs substantially is cultural issues. The European Commission has exclusive competence to negotiate trade in goods

138 and services, meaning the member states are sidelined except for issuing a negotiation mandate in the intergovernmental Council. One policy domain in which the Commission does not have exclusive competence to negotiate is intellectual property rights. The

French government insisted on a cultural exception to regulations regarding television and radio programming, to preserve what it considers a vital balance between French language and foreign language programming. This principle was introduced in the GATT

Uruguay Round and adheres to French laws that regulate what percentage of programming must be French language.51 The French government succeeded in having its cultural exception recognized in the EU regulatory regime and several other member states have also protected their culture with domestic regulations. Agreements in audio visual services have been limited at the multilateral and bilateral levels. In June 2013, EU member state trade ministers negotiated for hours over whether audio visual services would be on the table in the Transatlantic Trade and Investment Partnership (TTIP) (AFP

2013).

Geographical indicators are another example of cultural protection and US-EU regulatory regime divergence. In the European Union, there are three levels of protected geographical indicators which essentially limit types of foods products to one origin of production: Protected Designation of Origin (PDO), the narrowest distinction, Protected

Geographical Indication (PGI), second most narrow, and Traditional Specialty

Guaranteed (TSG), the most broad.52 Parmesan cheese is one example of an agricultural

51 In 1993, France introduced a law which requires private radio channels to play at least 40% French music (Cohen 1993). 52 The Directorate General for Agriculture and Rural Development distinguishes these categories thusly: “Protected Designation of Origin - PDO: covers agricultural products and foodstuffs which are produced, processed and prepared in a given geographical area using recognised know-how. Protected Geographical Indication - PGI: covers agricultural products and foodstuffs closely linked to the geographical area. At least one of the stages of production, processing or preparation takes place in the area. Traditional

139 product given the most stringent classification. Following a twelve-year campaign by the

Consortium of Parmigiano-Reggiano Cheese, the European Court of Justice decided that

“only cheeses bearing the protected denomination of origin (PDO) 'Parmigiano-Reggiano' can be sold under the denomination ‘Parmesan’ ” (Bodoni 2008; Parmigiano-Reggiano

2008). Before the ruling, although Parmigiano-Reggiano was distinguished as a PDO,

German producers used the translation ‘Parmesan’ cheese to evade the origin requirement. The consequence is that foreign-produced Parmesan bearing the name

‘Parmesan cheese’ is banned from the EU market.

The US also uses geographic indicators but only as qualifications of a general product. In the US it would be feasible to have a protected name for Idaho Parmesan, but not the term Parmesan alone. In the TTIP negotiations, the EU is attempting to negotiate to have the US cheese producers stop using EU protected geographical indicators such as

Parmesan and instead use labels such as Parmesan-like (Velasco 2014).

This is evidence that in previous instances of regulatory regime discord the US and EU used the WTO to arbitrate disputes over their different regulatory approaches.

However, the US and EU are instead seeking to collaborate on a transatlantic financial regulatory regime and have overcome the tendency to compete because of changes in the global economy and the international financial regulatory regime.

Mid 1990s: Renewing Economic Cooperation The 1990s saw an institutionalization of the relationship between the European

Union and the United States on several levels; more regularized settings were created to facilitate the interactions between the EU and US. In 1995, the US and EU launched the

Speciality Guaranteed - TSG: highlights traditional character, either in the composition or means of production” (Directorate General for Agriculture and Rural Development).

140 New Transatlantic Agenda (NTA) in part to respond to the concern that with the dissolution of the Soviet Union the main stimulus for a continuing close transatlantic alliance had evaporated. Institutionally, the utility of the main bulwark of the transatlantic alliance, the North Atlantic Treaty Organization (NATO), was in question as well. The

Agenda offered new pillars of the transatlantic regulatory regime. The NTA furthered regulatory cooperation in 1997 in several sectors by concluding “an EC/US Agreement on Drug Precursors; an EC/US Customs and Co-operation Agreement; and an EU/US

General Mutual Recognition Agreement covering telecommunications, equipment, electromagnetic compatibility, electrical safety, recreational craft, medical devices, and pharmaceuticals” (Meyer and Luenen 2008, 13).

The NTA established several dialogues for different elements of civil society alongside governmental interlocutors, including the TransAtlantic Business Dialogue

(TABD), the Transatlantic Consumer Dialogue (TACD), and the Transatlantic

Legislators’ Dialogue (TLD). In 2001, the Transatlantic Labor Dialogue (TALD) was formed.

The EU and US further institutionalized their economic cooperation in 1998 with the launch of the Transatlantic Economic Partnership (TEP). The goals of the TEP were both multilateral and bilateral. Multilaterally, the TEP was to establish a dialogue which would take place ahead of WTO negotiations and ministerial meetings to create

“coordinated positions” and even develop “common positions or elaborate proposals to be submitted in multilateral discussions and negotiations” (European Commission 1998,

1). However, as noted earlier in this chapter, trade disputes between the US and EU continued after the TEP. Though the TEP institutionalization “cushioned the blow” it

141 could not prevent a conflicts based on “a classic clash of EU and US economic and political interests” (Steffenson 2005, 165). Bilaterally, the EU and US would address a number of policy sectors with ministerial and official dialogues. These included technical barriers to trade in goods, and notably a dialogue on mechanisms to enhance regulatory cooperation.

The TEP also reaffirmed the desire to coordinate their consultative processes and develop opportunities to involve all stakeholders. (European Commission 1998:1) In reference to regulatory barriers, the TEP singles out the TransAtlantic Business Dialogue

(TABD) as a stakeholder with an interest in regulatory dialogues (European Commission

1998, 5). However, after the burst of activity in the 1990s, the TABD and other dialogues were less active.

Since 2008: Emergence of a Stronger Transatlantic Regulatory Regime Origins of Regulatory Cooperation The US and EU have different approaches to timing of regulation as well as preferences for institutional settings. As demonstrated in Chapters 2 and 3, there are significant differences in the EU and US financial regulatory regimes. The previous section demonstrates that the EU and US would ordinarily compete but after the financial crisis changes in the international financial regime spurred their cooperation. However, the nature of finance also creates incentives for the US and EU to cooperate and create one regime.

Regulatory conflicts between the US and EU can lead to competition to influence global standards, as noted by Drezner (2007). In All Politics Is Global, Drezner postulates that the US and EU will compete over regulatory standards with two rival standards if their preferences diverge until third countries choose one set over the other. This model

142 assumes that regulation is necessary to capture gains, which does not necessarily apply to finance. Some states avoid regulating or deregulate elements of finance in order to capture gains, particularly activity from industry actors using arbitrage. But harmonized transatlantic finance standards, tied to preferential access to their markets in multilateral trade agreements, would help the EU and US eliminate competition from states that cater to financial industry firms using arbitrage.

Of the three types of trade disputes mentioned earlier in the chapter, regulatory competition has the most direct effect on producers and business bears the cost of compliance more often than consumers or countries. Therefore at the international level, the desire to harmonize regulatory standards is purely to cater to business, not to improve government trade balances or aid consumers. But harmonizing financial regulation has the added bonus of contributing to gross domestic product because of financialization of profits.

Regulatory and trade analysts are quick to suggest that mutual recognition agreements are a way to avoid the conflict and distributional gains of harmonizing regulatory standards while insuring that there is no risk posed by a foreign product.

Mutual recognition agreements are a formal legal agreement between two parties that sets out a process to accept each other’s domestic standards as equivalent. For certain regulatory issues, like which agricultural products can be labeled organic, this is a sufficient solution. But for financial regulatory standards mutual recognition agreements can have potentially destabilizing consequences and do not adequately address the dynamic and ageographical nature of financial services.

143 Most mutual recognition agreements concern the flow of goods, which are easily stopped at borders. Financial flows and products are not as easily contained. For example, international structured products, domestic products traded on global markets, can be an amalgam of diverse products. Policy conditions in one country can impact the value of the structured products held by a bank in another state. Recognizing a foreign state’s regulation of the sale or formation of structured products as equal to domestic standards in order to allow those instruments to be held by domestic financial institutions rests the stability of domestic financial institutions on policy choices of another state that affect the value of those products.

Structured products allow investors to hedge risk through a combination of products. “There are structured products linked to interest rates, foreign exchange rates, commodities, credit risk, inflation, carbon, insurance, hedge fund returns and many other underlying variables, as well as hybrid products that combine some of these variables into a single product” (Bennett 2013, 19). One prominent example of structured products from

Chapter 2 is mortgage-backed securities (MBS). Collateralized debt obligations (CDOs) and collateralized mortgage obligations (CMOs), each generally containing several mortgage-backed securities, are packaged in a complex way that obscures the true risk of the mortgages within them. US government mortgage regulations, including government guaranteed loans, and unemployment trends can impact the value and stability of these products, which in turn can affect the balance sheets and stability of foreign financial institutions and investors who hold these products. Deficiencies in US regulation of mortgage lending contributed to a global recession because many foreign institutions held these products. Mutual recognition agreements in most areas of finance will not lower or

144 control risk posed by complex financial products. Finance requires a distinct regulatory regime.

Harmonizing or establishing common regulatory standards in a transatlantic regulatory regime is also the only option for EU-US cooperation after the financial crisis because of reforms made to the US and EU regulatory regimes. Reforms in both the EU and US made to support stability of their economies and financial institutions could possible be evaded or eroded by mutual recognition agreements. Two examples of areas with such a complication are asset risk weights and capital requirements.

Individual states and banks themselves create a system of asset risk weights for bank and non-bank financial institutions to calculate the true risk of items on their balance sheets. Risk weights are meant to measure assets or exposure on firms’ balance sheets according to potential risk. The higher the percentage of risk weight, the riskier the asset. “The models used to gauge the riskiness of a loan book were once provided by regulators, with fixed weightings for categories such as business credit or loans to other banks. But an update to the global regulatory guidelines, known as Basel II and adopted just before the financial crisis, encouraged banks to come up with their own risk models.

After all, bankers should know better than bureaucrats how risky any given loan might be. These home-made models have since been used to determine how much capital a bank needs” (The Economist 2015). For example, government bonds from Greece would be assigned a higher risk weight, perhaps 100%, compared to bonds from the US, traditionally assigned 0% by US banks. The total of these weights is used to calculate the capital adequacy ratio.

Following the financial crisis, the EU and US have changed their risk weighting

145 systems. The US has much stricter rules, particularly in the way mortgage-backed securities are weighted (Shearman and Sterling LLP 2013). The new EU guidelines assign loans secured by residential property a 35% risk weight while the new US guidelines assign either a 50% or 100% risk weighting depending on the quality of the mortgage (Article 125 of Regulation (EU) No/2013; Federal Deposit Insurance

Corporation 2016; Shearman and Sterling LLP 2013, 25). Previously the US regulation did not account for the quality of residential mortgages when assigning a risk weight. The new regulation is considered more risk sensitive than the previous regulation or EU regulation for this reason (Saunders and Allen 2010, 294). The US also has higher risk weights than the EU for claims secured by commercial property, exposures in default, unsettled securities or commodities transactions, and retail and consumer loans. Member state regulatory authorities can assign additional risk weight to mortgage-backed securities.

Additionally, the European Central Bank has assigned a risk weight of zero to sovereign debt, which has been criticized as underestimating risk by, inter alia, the

European Political Strategy Centre, “the European Commission’s in-house think tank”

(European Political Strategy Centre 2015). According to the Centre, “Zero-risk weighting of sovereign debt in the EU, as well as the exemption from existing large exposure requirements, are a source of vulnerability. This does not reflect a global regulatory constraint – as the global Basel framework does not prescribe zero-risk weight for bank exposures to sovereigns – but a regulatory choice made at [the] European and global level” (European Political Strategy Centre 2015). As Sascha Steffen, Head of the

International Finance and Financial Management Research Group at the Center of

146 European Economic Research, notes zero weighting sovereign debt is a political decision,

“I think the sovereign debt regulation was an issue of helping countries refinance. It was a political choice. It’s also a political choice not to do anything to change it right now.

[…] You cannot just change the rules from one day to the other. The banks simply don’t have enough capital. […] A change to reflect sovereign debt as having something other than a zero risk would be an important issue for banks in the peripheral countries in the

EU because they hold a lot of their countries’ risky debt. They are basically the only ones holding bonds of these countries at the moment” (Steffen 2014).

Sweden has already required that its banks assign a weight to sovereign debt and the Basel Committee is reviewing the issue of how to risk weight sovereign debt. Andres

Dombret, a Bundesbank board member, has indicated that the anticipated revisions of the

Third Basel Accord will require sovereign debt to be assigned a risk weight (Groendahl and Black 2016). For many EU banks, this would mean dramatically increasing their capital.

If the US were to sign a mutual recognition agreement with the EU that covered asset-backed securities or risk weighting generally, this could pose a serious risk to US investors and financial firms because the EU underappreciates the risk of default compared to the US.

Both the EU and US have changed capital requirements for banks after the financial crisis to comply with regulations from the international regulatory regime.

Increasing capital requirements is considered a way to ensure stability of financial institutions and protect investors. After the financial crisis, the Basel Committee on

Banking Supervision decided in the Third Basel Accord to raise capital requirements and

147 introduced a leverage ratio and liquidity requirement. The Basel Committee on Banking

Supervision is an informal forum in which representatives from central banks and supervisory authorities develop standards and guidelines for banks. These standards are then approved by the Group of Central Bank Governors and Heads of Supervision and voluntarily implemented by the Committee’s member states.53 The capital requirements of the Third Basel Accord are even higher for institutions deemed systemically important financial institutions (SIFIs), or those ‘too big to fail.’ Increasing capital requirements and leverage coverage ratios are strategies to ensure stability of financial institutions and protect investors. EU bank leverage ratios are laxer than the reformed US rules (Wright

2014).

Harmonization achieved through a single regulatory regime is the only choice if the EU and US are intent on jointly regulating finance because of the nature of financial activities and the international pressures. This is a partial answer to this project’s second research question of why the regulatory regime has changed after the financial crisis.

As we will see later in this chapter, American policymakers have been concerned that seeking any form of cooperation in financial regulatory standards with the European

Union will dilute the content of hard fought regulations in the Dodd-Frank Wall Street

Reform and Consumer Protection Act and the US rules adopted to carry out the Third

Basel Accord. But the input from industry has consistently suggested that harmonized standards would attract all other actors to comply.

53 The current states with institutional membership on the Basel Committee are Argentina, Australia, Belgium, Brazil, Canada, China, the European Union, France, Germany, Hong Kong, India, Indonesia, Italy, Japan, Korea, Luxembourg, Mexico, the Netherlands, Russia, Saudi Arabia, Singapore, South Africa, Spain, Sweden, Switzerland, Turkey, the United Kingdom and the United States (Bank for International Settlements, “Basel Committee Membership”).

148 Transatlantic Financial Regulatory Regime After the Financial Crisis The pre-existing transatlantic regulatory regime revolved largely around low-level regulatory dialogues and coordinating positions within international organizations. The financial crisis prompted the EU and US to upgrade several elements of the transatlantic regime. These upgrades manifest in several ways: level of cooperation, frequency or consistency of dialogue or meetings, scope of content of cooperation, and permanence of outcomes of cooperation.

In order to demonstrate how the transatlantic regime has changed, I created an index rating the major transatlantic financial institutions in 2006, 2007, and 2015 across two dimensions: activity and institutionalization.

The activity of each institution is rated on an index with two factors: the frequency of meetings and the number of outcomes or deliverables. Frequency of meetings is used as a measure of activity. Meetings are an important indicator of activity for institutions. This is because institutions use iterated games to achieve cooperation in game theory. In order to achieve cooperation, and concessions from some actors, all actors must expect that they will meet again.

The number of outcomes or deliverables is used as the other indicator to measure activity. This indicator does not attempt to assess the nature of the deliverables because the diversity of the institutions and their outcomes makes this nearly impossible. For example, while as an intergovernmental organization the Transatlantic Economic Council is able to create new transatlantic institutions, as a civil society organization TABD and

TACD are not. Counting the number of deliverables is an equalizing measure of productivity.

149 The second dimension, institutionalization, is measured by two indicators: existence and size of permanent staff and number of members. Permanency of staff is one way to measure the degree of institutionalization and formality of an organization (Volgy et al. 2008). However, nongovernmental institutions such as councils in particular may be institutionalized with a sizeable membership but fewer staff.

Ideally, other dimensions such as influence over transatlantic regulation, could be measured as directly. However, there are no clear deliverables at this stage of the transatlantic financial regulatory regime to be counted and attributing any regulatory outcome solely to the institutions below is problematic.

The full measurements for Figures 19, 20, and 21 are available in Appendix 5.

Figure 19: Transatlantic Financial Regulatory Regime, 2006

Institutional Dimension

Functional Dimension Weak Moderate Strong

Weak TACD*, TLD, TALD Moderate TABC/D* Strong *Information about the TABC/D and the TACD staff was unavailable. Source: Author generated.

150 Figure 20: Transatlantic Financial Regulatory Regime, 2007

Institutional Dimension Functional Dimension Weak Moderate Strong

Weak TLD, TALD Moderate TEC, FMRD Strong TACD* TABC/D

*Information about the TACD staff was not available. Source: Author generated.

Figure 21: Transatlantic Financial Regulatory Regime, 2015

Institutional Dimension

Functional Dimension Weak Moderate Strong

Weak TALD TLD Moderate TEC, FMRD Strong TTIP, TABC/D, TACD Source: Author generated.

US-EU Financial Markets Regulatory Dialogue (FMRD), Trans-Atlantic Business Council (TABC), TransAtlantic Business Dialogue (TABD), Transatlantic Consumer Dialogue (TACD), Transatlantic Labor Dialogue (TALD), Transatlantic Legislators’ Dialogue (TLD), Transatlantic Economic Council (TEC), Transatlantic Trade and Investment Partnership (TTIP)

In 1995 the US and EU launched the New Transatlantic Agenda and a series of advisory transatlantic civil society organizations. The TransAtlantic Business Dialogue

(TABD) was established as a formal channel for industry actors to provide their “unique

151 and indispensable perspective on trade liberalization” (Transatlantic Business Council).

However, following this period in the mid 1990s the activity in the TABD declined because cooperation between the EU and US was not a priority (Meyer and Luenen, 17).

Planned meetings were scaled down or cancelled (Corporate Europe Observatory 2001).

The TABD has been revitalized in order to continue to offer its “business driven vision of transatlantic trade and investment” (Vargo 1997). The Dialogue has changed to the

Trans-Atlantic Business Council (TABC) and represents individual firms and trade associations representing businesses or entire industries. The TABC regularly has stakeholders’ meetings ahead of official US-EU Transatlantic Economic Council meetings. Members of the executive level Trans-Atlantic Business Dialogue (TABD), within the TABC, are C-suite level members (Chief Executive Officers, Chief Financial

Officers and Chief Operating Officers) who serve in an official advisory capacity to the state-led Transatlantic Economic Council and have regular meetings with relevant EU and US officials.

The Transatlantic Consumer Dialogue (TACD) was established in 1998 in order to offer a voice to the consumer groups of civil society in EU-US government dialogues and negotiations during the launch of the New Economic Partnership. Its members are the consumer advocacy organizations and non-profits in the EU and US.

The Transatlantic Labor Dialogue (TALD) was established in 2001 but has not had the robust cooperation that was anticipated. Knauss and Trubek (2001) addressed the failings in the structure of the TALD, which was a “government-sanctioned” dialogue of the two primary union representatives of the most prominent American union organization, the AFL-CIO (American Federation of Labor and Congress of Industrial

152 Organizations) and in the EU, ETUC (European Trade Union Confederation) (235). The formal structure of the organization never took shape, regular meetings were not created, and the organization is all but officially disbanded. This explains its movement in both the institutional and functional dimensions from Figure 20 to Figure 21.

The Transatlantic Legislators Dialogue (TLD) has not had the productive dialogue desired either. Only members of the House of Representatives are eligible to participate as representatives of the US Congress. Furthermore,

“other than the appointment of the Chair and Vice-Chair by the Chairman and Ranking Member of the House Foreign Affairs Committee, there is no formal nomination of any other USTLD member. While many Members have participated in past meetings, participation in the USTLD often seems to be on an ad hoc basis, involving little continuity of participants and, in some instances, largely dependent on the ability of the Chairman to convince Members to attend the annual meetings. Observers believe this has led to an inability on the part of the TLD to attract and maintain a broad group of Members willing to participate on a permanent basis” (Ahearn and Morelli 2008, 10).

The TLD discussed financial services in 2011 and 2012 (Archick and Morelli

2013). However, those serving on the TLD were not sure that financial services were within their jurisdiction and they deferred to the HLWG and FMRD.

The creation of the Transatlantic Economic Council (TEC) reorganized the work of the civil society and industry channels: the TABD, TACD, and TLD became official advisors to the TEC. In Chapter 5, the connections between these channels and the TEC will be mapped.

The indices reveal that both the TABC/D and the TACD got stronger following the financial crisis, both in terms of activity and membership. The TALD has never officially disbanded, but is not producing or meeting. The explanation for these changes in activity and membership will be discussed in the next chapter.

153 Conclusions This chapter presents evidence of voice and vote changes in the IMF and G20 after the financial crisis. These changes to the international financial regulatory regime shifted power away from the US and EU and to emerging market economies and developing countries. This evidence supports this project’s assertion that the financial crisis of 2007-2009 was a critical juncture in the international financial regulatory regime.

The challenge to EU and US leadership in the international financial regulatory regime was an external pressure which encouraged them to collaborate and create the transatlantic financial regulatory regime. This chapter also presents evidence that the transatlantic regulatory regime changed after the financial crisis.

The evidence documents an increase in the institutional strength of the TABC/D and the TACD from 2007 to 2015. It also documents an increase in the functional activity of the TABC/D, TACD during the same period. The evidence also indicates a change in the institutional and functional intensity of the TALD, which is effectively disbanded in

2015. The evidence of TABC/D and TACD activity and the contrast with the TLD supports that industry actors are driving regulatory cooperation. The introduction of the

TEC, FMRD, and the TTIP further strengthened the transatlantic financial regulatory regime.

The aggregate of this evidence supports the project’s claim that the financial crisis was a critical juncture that precipitated changes in the transatlantic regulatory regime that specifically addressed finance. The movement of both the TACD and

TABC/D also indicates that the civil society and industry institutions have become more active and institutionalized than their intergovernmental counterparts, with the exception

154 of the TTIP. The limitations of the evidence presented are the inability to document all internal institutional processes and activity and the missing staff data for the TABC/D and TACD.

The next chapter will map the relationships between the institutions of the transatlantic financial regulatory regime and explain the way that civil society, and industry actors as a part of it, has driven changes to the regime.

155 Chapter 5: The TTIP: Reorienting the Transatlantic Regulatory Regime The previous chapter provided evidence that the financial crisis of 2007-2009 was a critical juncture in the international and transatlantic regulatory regimes. This chapter will explain that the EU and US reacted to the international regulatory regime changes not only by intensifying their regulatory cooperation in existing for a, but by establishing a transatlantic financial regulatory regime. This chapter will demonstrate that the EU and

US established the transatlantic financial regulatory regime both to respond to the demands of industry, and to continue to dominate the international financial regulatory regime. The chapter will do so by using the research method of process tracing to document the developments in the run-up to the TTIP negotiations and by mapping the connections of the institutions of the transatlantic financial regulatory regime. This mapping will reveal industry’s privileged access and input into the regime.

The transatlantic relationship has sought to influence global regulatory standards using a variety of strategies. Notably, the EU and US have used international governmental organizations including the World Trade Organization and International

Monetary Fund to pursue their regulatory agendas. However, recently the EU and US have eschewed the traditional regulatory forums in favor of a comprehensive

Transatlantic Trade and Investment Partnership (TTIP). A leaked TTIP draft first revealed that financial services would potentially be included in the free trade agreement

(Pinzler 2014). More recently the European Commission confirmed that there is a chapter on financial services being negotiated (Directorate General for Trade 2016). This is despite the Obama administration’s demonstrated reluctance to include financial services in the agreement (Johnson and Schott 2013; Bracken 2014). However, in the run-up to

156 negotiations policymakers in the EU and US have privileged the input of industry by creating institutions for industry to meet, organize and steer government action. Industry associations and large firms have used these institutions to push for a transatlantic financial regulatory regime that will primarily benefit multinational corporations and financial institutions. The EU and US hope that by benefiting industry and the finance industry that they will continue to dominate the international financial regulatory regime and enjoy finance-led growth.

Steering and Rowing

Scholars have analyzed regulation of essential services at the state level by examining the interaction between the activities of the state and civil society. In

Reinventing Government, Osborne and Gaebler assert that in an ideal division of responsibilities the government is steering and civil society is rowing (1992). The term steering refers to directing and guiding activities and rowing refers to entrepreneurial activities and service provision. By steering the state would ensure essential service provision but not necessarily provide the services itself; the service provision or rowing would be left to civil society actors and industry.54 Their book discusses ways to introduce market mechanisms in government that will inspire competition and choice in public service provision. The division of tasks between steering and rowing is associated with the larger movement in neoliberalism to privatize government services.

Braithwaite considers this particular division of labor part of the contemporary regulatory state, which emerged in the 1980s with neoliberalism, but notes that other

54 This analysis includes industry in civil society because the transatlantic financial regulatory regime treats industry as a part of civil society. however many other authors categorize industry separately from civil society. In the paradigm of the regulatory state, there are only two categories of actors: the state and all other actors.

157 models have preceded this one (Braithwaite 2000). From the nineteenth century until the

1930s, the Nightwatchman state saw civil society both steer and row, with a state role in the background.55 In the postwar period, the state used Keynesian principles to play both roles, directing and providing services. It is important to note that the Nightwatchman and Postwar state have been developed with the US and UK as cases. The regulatory state has been applied more broadly including to the European Union. Though these terms may be applied to other countries, it might require altering the time periods.

The new regulatory state has been heralded by several policy scholars (Majone

1996; Moran 2002; Jordana and Levi-Faur 2004). Though neoliberal tenets favor free market solutions such as deregulation and privatization, regulatory competition allowed both neoliberalism and the regulatory state to develop simultaneously. Jurisdictions alter their regulatory regimes in order to attract households, businesses and industries in

Tiebout’s regulatory competition model. Through this model, scholars have explained the growth of the regulatory state (Majone 1996). The United States and the European Union are the subjects of the majority of the scholarship on the regulatory state because of ability of their domestic regulatory regimes to influence international regulatory regimes and because the multilevel governance which characterizes their domestic regulatory regimes allows for regulatory competition among different regulatory regimes.

However, the concept of the regulatory state fails to capture some of the external pressures on domestic regulatory regimes that arise as a result of globalization and particularly the globalization of civil society and industry. Although competitive regulatory regimes arise as a result of globalization since firms and households have increased mobility and access to information about regulatory regimes, the regulatory

55 Figure 1 illustrates these eras.

158 state should still be steering the entrepreneurship and service provision. Scholars have noted that transnational phenomena such as financial services and flows are not easily constrained by traditional state-based regulation and that globalization has therefore precipitated global governance arrangements in a number of policy areas (Sinclair 2001;

McGrew and Held 2002; Porter 2005). The negative externalities of these transnational phenomena may be partially managed by individual states but the regulatory state is not necessarily equipped to steer transnational activities unless it completely exports its domestic regulatory regime. In the EU and US, civil society and industry actors are adept at navigating and interacting with the domestic regulatory regime and global civil society and industry actors interact with the international regulatory regime.

Industry as a Part of Civil Society? This project does not seek to limit the definition of civil society to industry- related interests. Rather, this project argues that the transatlantic regulatory regime is privileging industry actors as representatives of civil society and demonstrates that industry actors are the most frequent participants in consultations and stakeholder presentations that are open to all civil society. Despite the fact that much of political science literature that treats civil society as a distinct category from industry and the state, this project includes industry groups in civil society because the regulatory state literature does and because the transatlantic regulatory regime includes industry actors in the institutions created for civil society.

The most organized groups related to a regulatory issue can represent the most influential elements of civil society in a pluralist system. Gilens and Page (2014) have found evidence that at the US level “economic elites and organized groups representing business interests have substantial independent impacts on U.S. government policy, while

159 average citizens and mass-based interest groups have little or no independent influence”

(564). Jordana and Levi-Faur (2004) assert that a high degree of organization will make a group play a more prominent role on behalf of civil society. Lindblom (1977) reveals that when there are economic interests at stake, business has a privileged position in domestic policymaking. However, none of these observations about the domestic level account for the organization of transnational civil society and industry groups at the transnational level.

Industry interests are often the most organized on the transnational level, especially in the case of financial regulation, and have the opportunity to effectively capture—or take over—the steering of international regulatory regimes. Koppell documents this process in several global governance organizations, namely the World

Health Organization, Internet Corporation for Assigned Names and Numbers, the

International Telecommunications Union and the World Intellectual Property Rights

Organization (2006). He finds that interest actors are more effective if they have the ability to mobilize their constituencies at the transnational level, are formally represented in the decision-making processes, and can provide desired information to the process.

According to Koppell, transnational interest groups are more influential in global governance than interest groups in a domestic context because they are often “direct participants” in the policymaking which follows a “corporatist” rather than pluralist model; this means that the bargaining takes place “between the state and ‘peak associations’ representing key sectors of society” (Koppell 2006: 1-2). The financial industry is considered a key sector of society in the transnational financial regulatory

160 regime and industry actors have been granted a formal, privileged role in the policymaking process by advising the Transatlantic Economic Community.

Financial industry actors, by which this project refers to financial firms and financial industry associations, have successfully organized on the transnational level and effectively preempted some state and international level regulation because of the process of financialization discussed in Chapters 2 and 3. If policymakers prioritize financial growth by continuing to create regulation deemed friendly to the financial industry, it would indicate that the financialization growth narrative is operationalized as if the direct relationship between finance and GDP exists.

This narrative has operated to privilege the financial industry actors, and indeed industry actors generally,56 above other civil society actors in the course of formulating a transatlantic regulatory regime. In the transatlantic regulatory regime, industry actors were granted institutionalized channels to the policymaking or harmonization process that the labor groups were not, and participate more frequently than their counterparts in the open consultations. The transatlantic financial regulatory regime has begun to conflate civil society with industry actors. Including industry as a representative of civil society is indicative of an ideological bias in favor of finance-led growth. The regime’s usage of the term civil society has caused significant opposition to TTIP in the EU.

In April 2007 the EU and US launched the Transatlantic Economic Council

(TEC). The TEC is a high-level governmental organization that meets at least once a year. It is chaired by one US official and one EU official and the other members are officials from the European Commission and the US executive branch. The TEC is tasked

56 Many industry actors net a greater share of their profits from financial activities than manufacturing or their other traditional ‘main street’ activities.

161 with identifying and advancing new areas of economic cooperation and even “ economic integration” (US Department of State 2009). The TEC has revitalized the civil society dialogues that advise it. It has also formed a formal Group of Advisors composed only of the directors of the Trans-Atlantic Business Council, Transatlantic Consumers Dialogue, and Transatlantic Legislators Dialogue (Jancic 2014). Notably, it excludes the

Transatlantic Labour Dialogue, which has been functionally disbanded.

After the financial crisis of 2007-2009, one of the early opportunities for civil society participation in the transatlantic regulatory regime was the High-Level Working

Group on Jobs and Growth (HLWG). In the aftermath of the global recession from

2008-2010, the EU and US formed the HLWG during the November 2011 US-EU

Summit designed to identify and report measures which would stimulate trade and investment between them, increase their competitiveness, harmonize regulation where possible, and create jobs. The HLWG was an advisory, governmental body to the

Transatlantic Economic Council (TEC) and was chaired by the US Trade Representative

(USTR) and the EU Trade Commissioner. The primary domestic motivations for the creation of this institution were the immense existing trade and investment linkages between the EU and US, and the similar positions of the US and EU in the global economy (White House 2011). The financial crisis and recession was unsettling to the industrialized countries because they disproportionately affected them compared to developing countries and emerging market economies.57 This led to changes in the institutional structures and procedures of the international financial regulatory regime that

57 This is particularly true in the case of growth rates, which have been diverging for some time. See D.Willem te Velde, ‘The global financial crisis and developing countries’, Overseas Development Institute Background Note, October 2008 and ‘Emerging markets and recession: Counting their blessings’, The Economist, 30 December 2009.

162 removed some of the power of the US and EU. The shift in power towards global and emerging market economies posed a challenge to the dominance of the EU and US and pushed them to work together to make the foundations of global governance in financial regulation. The EU and US overcame their differences to compete and be rule makers rather than rule takers in financial regulation. The goal of the transatlantic financial regulatory regime is to reassert dominance in the international financial regulatory regime.

For the European Union and United States it was a strategic decision to identify ways to further integrate their economies as a counterbalance to the emerging market economies’ new power in the international financial regulatory regime. The HLWG held a series of public consultations that were crucial in deciding potential areas for cooperation and the submissions to the public consultations are presented in the next section.

Other civil society actors have also participated in the transatlantic regulatory regime through institutionalized channels created by the EU and US but have been allowed limited opportunities for formal participation compared to industry representatives. The chief way civil society has been organized is into sector specific dialogues. Figure 22 charts these dialogues as well as the intergovernmental processes before and after the financial crisis.

163 Figure 22: Transatlantic Regulatory Regime by Sector, 2006 and 2015 Sector/Actor Institutions in Institutions in Change in institutional activity 2006 2015 after financial crisis

Business TABC/D TABC/D, TEC TABC/D: Position papers, Group of Advisors, increased meetings, roadshows The TTIP Advisory Groups Finance FMRD FMRD Upgrade discussion of financial services from FMRD to the TTIP Property IPRWG TIPRG Small business serviced; seek Rights compliance of third states Government TLD, High-Level TLD, High-Level Single market sought; launch Regulatory Regulatory TEC; goal of transatlantic Cooperation Cooperation regulatory regime explicitly to Forum Forum, TEC58, impact international regime HLWG, TTIP Consumers TACD TACD, TEC Group Response to the HLWG and of Advisors, TTIP calls, position papers, Commission EU Advisory Group, US PITAC Labor TALD TALD AFL-CIO-ETUC joint response to the TTIP, excluded from TEC group of advisors Source: Author generated. FMRD (Financial Market Regulatory Dialogue), HLWG (High Level Working Group on Jobs and Growth), IPRWG (Intellectual Property Rights Working Group), TABC (Trans- Atlantic Business Council),TABD (TransAtlantic Business Dialogue), TACD (Transatlantic Consumer Dialogue), TALD (Transatlantic Labor Dialogue), TEC (Transatlantic Economic Council), TIPRG (Transatlantic Intellectual Property Rights Working Group), TLD (Transatlantic Legislators Dialogue), TTIP (Transatlantic Trade and Investment Partnership)

One of the dialogues, the Transatlantic Consumer Dialogue (TACD), has been an active critic not only of the way negotiations have been conducted thus far but also of the emergence of the a transatlantic regulatory regime. Members include Public Citizen,

58 In April 2007 during the EU and US summit the TEC was launched, however work did not start in most areas until 2008.

164 the Center for Food Safety, Citizens Advice, Consumer Reports, Consumer Watchdog, the Electronic Frontier Foundation, the European Association for the Coordination of

Consumer Representation, Privacy International, and The European Consumers’

Organisation. Despite the impetus behind for the creation of the TACD, representatives of TACD have complained about the lack of access and transparency in the TTIP negotiations. TACD US Co-Chair Ed Mierzwinski noted that the advisory group to the

US Trade Representative includes 600 representatives of industry and only one of consumers. (TACD responds to USTR announcement) The TACD has, however, managed to secure a position in the Group of Advisors to the TEC. The TEC established a Group of Advisors composed of the chairs or directors of the major existing transatlantic dialogues who would be representing stakeholders. The “major” transatlantic dialogues represented in the Group of Advisors are the TABC/D, TACD, and TLD; the three directors are the only members of the Group of Advisors (Jancic 2014).

The Transatlantic Labor Dialogue’s input to the TEC process has been naught compared to the privileged access of the Trans-Atlantic Business Council. The

Transatlantic Consumer Dialogue has been welcomed into the group of advisors and revitalized by this inclusion. Unlike the Transatlantic Consumer Dialogue, the

Transatlantic Labor Dialogue has been excluded from the Group of Advisors to the TEC.

The European Trade Union Confederation’s (ETUC) made a contribution to DG Trade’s public consultation as a part of the High Level Working Group in September 2012. The response iterates the group’s frustration with a lack of labor access to the TEC and the lack of substantive input it has been allowed: “The Transatlantic Business Dialogue has been given pride of place in the relationship, notably in advising the TEC, while the

165 European Trade Union Confederation and AFL-CIO, de facto constituting the

Transatlantic Labour [sic] Dialogue, have been given little access. The agenda has been restrictive and non-strategic” (European Trade Union Confederation 2012).

US and EU labor groups, who are relatively organized members of domestic civil society and whose endorsement of trade agreements is generally important in the ratification process, have also noted that despite formal though not privileged participation in the process, they do not feel they are being heard. In testimony to the

European Union Committee in the House of Lords of the United Kingdom Parliament on the TTIP, Damon Silvers, Director of Policy at the American Federation of Labor and

Congress of Industrial Organization (AFL- CIO), noted that he had spoken to the USTR

Michael Froman:

“ ‘about as many times as most people in the policy-making process in the United States’. He suggested that it was not the case that the American labour movement is radically isolated from the policy-making process, but rather that, ‘you can be talked to without genuinely participating.’ He noted that having formal standing in the process did not mean being part of policy formulation, and that the only way to be included in the policy formulation process was to have a process that was sufficiently broadly open that you could marshal allies in the conversation. The civil society participants invited to join the TTIP process are almost entirely industry representatives” (House of Lords 2014, 85).

The complaints from labor and consumer groups about the advisory process led to changes in the USTR’s advisory structure, but these were symbolic changes that reinforced a two-tier system of access for members of civil society and industry.

Responding to broad criticism regarding the advisory process that led to the inclusion of copyright and patent-holder friendly intellectual property provisions in drafting of another trade agreement, the Trans-Pacific Partnership agreement, the USTR office announced in February 2014 that a Public Interest Trade Advisory Committee (PITAC)

166 would be formed. Negotiations for the Trans-Pacific Partnership were conducted at the same time as the TTIP negotiations and both agreements have faced criticism after their perceived bias towards industry preferences.

The new PITAC was formed in response to a refusal of the influential Industry

Trade Advisory Committees (ITAC) to allow representatives of the public interest to attend their meetings. Indeed, this institutionalization marginalized and “segregate[d]” representatives of the public interest (Flynn 2014).

The corollary advisory group in the EU was convened by the EU Commission. It convened a TTIP Advisory Group composed of stakeholders who represent broader interests than the USTR advisors. These include representatives from consumer affairs and environmental affairs, and labor groups (Directorate General for Trade 2014a).59 The creation of the group was announced in January 2014 and the group’s first meeting took place in March 2014, after three rounds of negotiations had been completed. If negotiations had been completed on ‘one tank of gas’, as desired by both the EU and US because of the timing of the US elections and the formation of the new Commission, the

Advisory Group may have not been formed (Froman 2013). The European Commission

Directorate-General for Trade (DG Trade) has also initiated public consultations about aspects of the TTIP, US-EU economic relations and transatlantic regulatory issues, among them two joint consultations with the US, to target all stakeholders. However, most have garnered responses from business associations and large firms.

Figures 23, 24, and 25 map the connections between the major institutions in the transatlantic regulatory regime before and after the financial crisis, indicating the

59 These EU-level advisors are also joined by the member state-level advisors, who influenced member state government positions ahead of the Commission negotiation mandate, but this project will focus on groups who have influence over the ongoing process.

167 centrality of some institutions and the amount of input from advisory institutions. A solid arrow denotes input and advice from one institution to another. The thickness of the arrows signifies the amount of input that the institutions have.

Figure 23: Transatlantic Regulatory Regime Map, 2006

Source: Author generated.

168 Figure 24: Transatlantic Financial Regulatory Regime Map, 2007

Source: Author generated.

169 Figure 25: Transatlantic Financial Regulatory Regime Map, post 2007

Source: Author generated.

The maps above demonstrate that centrality of the TABC/D in the transatlantic financial regulatory regime and its particular input into the HLWG and TTIP processes.

The TACD also maintains a strong connection to the TEC but has not participated as frequently in advising the TTIP process. The input of labor actors is missing completely from the regime as the Transatlantic Labor Dialogue has functionally disbanded. Though the Transatlantic Legislators Dialogue regularly meets, as discussed previously the group

170 has achieved very little and is not functionally contributing to the TEC group or the other institutions in the regime.

The TTIP negotiations are conducted in relative secrecy and do not reveal drafts of the agreement to governments and the public for comment, unlike WTO trade agreements.60 Since the European Commission has exclusive competence to conduct trade negotiations, the Council of Trade Ministers have agreed on a negotiation directive

(mandate) which gives instructions to the Commission regarding the content and direction of negotiations (European Council 2013). While EU member state governments and select European Parliament officials have access to EU texts, at the request of the US they do not have access to US draft texts (House of Lords 2014, 10). DG Trade published its initial negotiating positions; the US has not.

In the context of the TTIP, civil society and industry actors have been deliberately organized by the US and EU in efforts to give a directing voice to industry. This voice has begun to eclipse other voices in influencing the transatlantic regulatory regime and has begun demanding service from domestic regulatory bodies; industry actors are steering and the state is rowing by providing a new form of service: institution building.

In the dogma of mainstream international political economy, the role of the state has been eroded by the processes of globalization. In the transatlantic financial regulatory regime, the state has moved beyond the provision of traditional services and instead has a new role building institutions for industry actors. These institutions are infrastructure that will allow industry to compete globally. This is a paradigm shift in international political economy.

60 There is evidence that significant developments in WTO negotiations take place outside of formal drafts, but in the TTIP process EU member state governments have access to neither. See Jawara and Kwa 2004.

171 Institutionalization of Industry as Civil Society

Mobilizing industry in an official advisory capacity is a significant piece of the

EU-US strategy to support the establishment of international regulatory regimes that allow industry actors to contribute to the EU and US GDPs.

As mentioned in Chapter 4, members of the TABC have regular meetings with officials in the TEC. Industry actors have voice opportunity at these meetings and are encouraged to express the issues they face and the regulatory regimes they would like to see established.

The TABD played a crucial role in the 1990s in “quadrilateral” negotiations between the EU and US on regulatory issues and established breakthroughs towards mutual recognition agreements (Cowles 2000). In testimony to the US House Committee on International Relations, US Acting Assistant Commerce Secretary Franklin J. Vargo made the following comments about the role of the TABD:

“What it has done is to focus business attention on the transatlantic marketplace and to enable businesses on both sides of the Atlantic to agree on what the most important remaining barriers are and to agree on a joint course of action to recommend to the U.S. Government and the European Commission.It is difficult to overstate the effect the TABD has had on trade liberalization. No other forum has risen so rapidly to become as effective as the TABD. It has become the single most important channel through which business can influence the bilateral trade and commercial agenda of the U.S. Government and the European Commission. The European Commission's Sir Leon Brittan summed up the process well when he said, ‘whenever our two business communities can agree jointly that an action is in the mutual interest of our two economies, it is incumbent upon us to seek to implement their recommendation -- or at the very least to sit down with them and explain why we cannot, and to try to work out another approach’ ” (Vargo 1997, emphasis added).

Vargo’s testimony identifies the steering role played by the TABD in the mutual recognition agreements between the EU and US; representatives of business identified

172 areas for cooperation and then the US and EU followed by implementing their solutions.

The TABD did this not only by serving as direct interlocutors with representatives from the US Department of Commerce, European Commission, and EU and US regulatory agencies but also by organizing to influence domestic politics and opinions (Cowles

2000).

In the previous section this project has demonstrated that after the financial crisis the connections between civil society groups and the transatlantic regulatory regime changed. Next the project will review the quantities of submissions to the regulatory regime.

The aforementioned High-Level Working Group on Jobs and Growth (HLWG) conducted a series of public consultations, in 2012 through DG Trade and then a joint consultation with the USTR that allowed EU and US-based business organizations, public authorities, firms, non-governmental organizations, and individuals to make suggestions about the direction of EU-US cooperation. Below the responses to the consultation are coded to see who “sets the agenda” of the TTIP talks since the HLWG was tasked with doing so. Fahey and Curtin (2014) have recently asked “Who did the

HLWG listen to?” and partially answer their question by citing a private Commission non-paper, “It is based on ideas put forward by EU and US industry and builds on existing cooperation between EU and US regulators in this area” (Fahey and Curtin 2014:

217). It is beyond the scope of the authors’ analysis to identify who those industries are so this project seeks to identify three factors from the submissions to the HLWG.

The responses to the public consultations are coded first by category of organization: business, trade association representing business, trade union or

173 organization representing trade unions, consumer protection agency or representative, government institution or regulator authority, other non-governmental organization, academic/research institution, citizen, and other. The purpose of counting frequency is to determine which civil society actors have the most input into the process. These category codes were created by DG Trade in this Second Consultation from September 2012 but have been applied in this project to each consultation. The submissions are then coded if they are supportive of including financial services or products in an agreement between the EU and US.

Then each actor submitting a response is coded if the financial industry is represented by the actor. Financial services industry or firms must be explicitly mentioned by the organization in the membership description. In order to investigate the transnational character and breadth of the support for the EU-US agreement, joint submissions are also coded. Joint EU-US submission refers to a submission on behalf of at least one industry, regulatory or consumer protection group from the EU and at least one from the US. Finally, the results were coded to count the frequency of support for the inclusion of finance in an EU-US agreement. The responses coded “supportive of including finance in trade agreement” include language that does not merely mention financial services or products but suggests they should be included in a trade agreement.

The full coding completed for this project is available in Annex 6.

174 Figure 26: Agenda Setting Consultations

Organization Subject Closing Date High Level Working Group Areas to cooperate April 2012 DG Trade Future of EU-US trade and September 2012 economic relations DG Trade-DG Enterprise and Solicitation on Regulatory October 2012 USTR/OIRA Issues Source: Author generated. Figure 27: EU-US Public Consultation Results Legend Indicator Code Supportive of including finance in trade SIF agreement Joint EU-US Submission J Finance industry represented in group/business FIN

April 2012 Consultation Code # SIF FIN J Business 7 1 Trade association representing business 34 9 4 1 Trade union or organization representing trade unions Consumer protection agency or representative Government institution or regulator authority 2 Other non-governmental organization 3 Academic/research institution 1 Citizen 1 Other Total 48 9 5 1

175 DG Trade Public Consultation September 201261 Code Self-Report # SIF FIN J Business 28 13 2 Trade association representing business 47 42 5 1 Trade union or organization representing trade 8 3 2 unions Consumer protection agency or representative Government institution or regulator authority 3 1 1 Other non-governmental organization 5 6 1 Academic/research institution 1 1 Citizen 8 6 1 Other 14 Total 114 72 12 1 0

Joint EU-US solicitation on regulatory issues issued by DG Enterprise/DG

Trade and OIRA/USTR October 2012 Code # SIF FIN J Business 8 2 1 Trade association representing business 78 10 8 14 Trade union or organization representing trade unions Consumer protection agency or representative 2 Government institution or regulator authority 1 Other non-governmental organization 5 1 Academic/research institution Citizen Other Total 94 12 9 15 Source: Author generated.

61 Of 114 responses, 77 selected to make their submissions public. Duplicates have been removed to reveal the total of 72. DG Trade asked that organizations self-report, however several associations misappropriated codes. The full coding completed for this project is available in Appendix 5. Consultation conducted by DG Trade closing September 2012.

176 Figure 28: Responses to Public Consultation as Percentages, 2012

Source: Author generated.

The public consultation submissions were overwhelmingly in favor of a bold free trade agreement between the EU and US and the key priorities were summarized as,

“trade in goods, trade in services, investment, public procurement, intellectual property, rules of origin, the digital economy, access to raw materials, visa procedures and in particular ‘21st century’ trade issues such as regulatory cooperation and non-tariff barriers. Additionally, enhanced cooperation in relation to third countries and the

177 importance of preserving the role of the WTO multilateral system has been highlighted”

(Directorate General for Trade Executive Summary, 2).

There are five developments in the public consultations relevant to this project.

First, industry associations and business together comprised 85 percent of the responses to the calls. Second, sixteen groups of EU and US trade associations and nongovernmental organizations replied with joint statements. For example, two large automotive industry groups, AAPC (American Automotive Policy Council) and ACEA

(European Automobile Manufacturers Association) and the European Chemical Industry

Council (CEFIC) and American Chemistry Council (ACC), issued joint replies to the joint solicitation on regulatory issues which was closed in October 2012. Those groups that responded to the regulatory call replied with areas of regulations which could be harmonized. Occasionally, groups also identified a way regulations could be harmonized without distributional costs and providing benefits to industry actors on both sides of the

Atlantic. This directs DG Trade and the USTR to ways that they can provide service to firms and industries by harmonizing regulation. It also supports this project’s assertion that domestic civil society and industry actors are organizing at the transatlantic level, which may increase their influence in the transatlantic regulatory regime.

Third, industry actors unrelated to finance made a push for finance to be included in a trade agreement. In total thirty-three responses requested that financial services be included in the agreement. The Chamber of Commerce organizations, some of which represent finance organizations, were nearly universally supportive of the inclusion of financial regulatory issues. Furthermore individual businesses (like Intel), labor unions, and citizens also suggested financial regulation be included in a trade agreement. The

178 push from non-financial industry actors and associations to include financial services in

TTIP signifies an alignment of interests between general industry and the financial industry. Because of financialization, corporations rely on financial products and activities to make profits and give returns to their shareholders.

Fourth, the finance industry seemed to be surprised by the call and was unprepared to contribute to it. (Securities Industry and Financial Markets Association

2012) Initially, the American Chamber of Commerce to the EU (AmChamEU), suggested that in financial services, “[t]he volume and complexity of the issues to be addressed in the financial services sector are better suited to a bespoke process amongst EU and US rule-makers than an FTA. However, we believe that a set of key principles for regulatory cooperation and convergence applying to all sectors, including financial services, should be an integral element of an FTA, even if their application needs to be delivered through sector-specific mechanisms” (AmChamEU 2012). However, since AmChamEU has changed its position and requested regulatory cooperation on financial services be included in TTIP (AmCham EU 2015).

Fifth, Latvia, Denmark, and the Administrative Conference of the US also submitted responses to the public consultations.62 This suggests that government actors also feel the need to reorganize at the transatlantic level in order to influence the decision-making process directly.

62 “The Administrative Conference of the United States is an independent federal agency dedicated to improving the administrative process through consensus-driven applied research, providing nonpartisan expert advice and recommendations for improvement of federal agency procedures. Its membership is composed” (Administrative Conference 2016). A chairperson and ten council members are appointed by the President. Members are both private citizens and members of government.

179 Few submissions addressed global competition as an impetus for the EU and US to cooperate. However the Transatlantic Business Dialogue in its own contribution to the

April 2012 public consultation summarized quite well the impetus for the EU and US to leverage their collective power to influence third countries:

“The notion is mistaken that we can ‘go it alone’ in trying to convince other countries to reject protectionist trade policies, forego discriminatory industrial and regulatory policies, and provide adequate and effective intellectual property protection. This can also lead to serious missed policy opportunities for the United States and the EU to raise the bar in terms of setting international norms and standards. Strengthening transatlantic bonds is important not only in terms of how Europeans and Americans relate to each other, but how we can harness the potential of the transatlantic partnership to open markets in other countries, especially the emerging growth markets, and strengthen the international economic system” (Transatlantic Business Dialogue and the Business Roundtable 2012, 3).

Preserving the influence of the “core market economies” on the international regulatory regime is indeed a major impetus behind the new spate of transatlantic regulatory regime building. The HLWG final report conclusions suggested that the EU and US “reach bilateral agreement on globally relevant rules, principles, or modes of cooperation” in several sectors of the economy (EU-US High Level Working Group on

Jobs and Growth 2013, 6). The next step in establishing “globally relevant rules” was to initiate negotiations.

During each TTIP negotiation round, negotiators listen to presentations by registered stakeholders and then update them on the progress of negotiations in a briefing.

The negotiation rounds alternate between being hosted in the European Union and in the

United States. The host institution keeps the records of stakeholder presentations and registration for the briefings. In the case of the EU, these records are disseminated by DG

Trade and in the case of the US these records are made available on the USTR’s blog,

180 Tradewinds.63 The presentations and registered participants for the eight rounds of negotiations are coded using the categories applied to the public consultation responses.

There have been eight rounds of negotiations through March 2015 but there are only data for six of the stakeholder sessions. The second round of negotiations and stakeholder presentations, scheduled for October 2013, was postponed until November 2013 because of the United States federal government shutdown. Though the stakeholders briefing took place on November 15, 2013 no schedule of presentations was made available publicly.

A list of registered participants is available however without voice participation. The seventh round of stakeholder presentations, which took place on October 1, 2014, is not publicly available either. This round was hosted by the United States but the record of stakeholder presentations is not available on the USTR blog.64

Figure 29: TTIP Stakeholder Presentations Coding

Category First Third Fourth Fifth Sixth Eighth Total Academic or Research Institution 3 2 3 6 2 0 16 Business 6 5 1 2 0 1 15 Consumer Protection Agency or 5 5 5 5 4 2 26 Representative Government Institution, State 1 2 1 4 1 1 10 Representative or Regulatory Authority Other Non-governmental 7 10 13 12 11 16 69 Organization Other 0 0 1 1 3 3 8 Trade Association or Cross-sector 27 28 60 43 46 55 259 Business Association Trade Union or Organization 1 1 7 3 5 3 20 Representing Trade Unions Total 50 53 91 76 70 81 421 Source: Author generated.

63 USTR, “Tradewinds” https://ustr.gov/tradewinds 64 These records have been requested but are not currently available.

181 Figure 30: TTIP Stakeholder Presentations, through March 2015

Source: Author Generated.

The stakeholder presentations are consistent with the findings of the public consultation responses in one regard: trade associations and cross-sector associations dominate the responses. There is a notable uptick in government participation in two rounds hosted in the US, round three with two presentations and round five with four presentations. Of these, three presentations were by US state and regional trade promotion offices (Vermont, Maine, and Virginia-Washington DC) that promote domestic state businesses in other US states and internationally in economic paradiplomacy.

182 There are four points of interest in the stakeholder presentations. First, industry representatives composed sixty-one percent of the total stakeholder presentations. While this figure is less than the seventy-two percent of the HLWG public consultations, it is still a significant majority compared to the participation percentages of the other stakeholder groups.

The second point is the lack of diversity in some of the civil society categories.

Consumer protection representatives gave six percent of presentations, but most of these were given by one organization on several different topics. Public Citizen gave eleven of the twenty-six presentations in the consumer protection agency or representative category. Consumer protection agencies and representatives are lacking in diversity of voice at the transatlantic level.65 This is a stark contrast to the industry, which often has two or three associations per industry giving presentations. This is despite the organization of a Transatlantic Consumer Dialogue, which was created as a counterpart to the TABD/C. The voice of consumers in the TTIP is monotone. Of course, there is a disparity in resources available to consumer advocacy groups and business and industry groups and this disparity is likely reflected in their participation.

Third, there were only five joint EU-US stakeholder presentations in all six stakeholder presentation sessions. Furthermore, the five joint presentations were all by the same group of industry organizations: American Automotive Policy Council (AAPC),

European Automobile Manufacturers’ Association (Association des Constructeurs

Européens d'Automobiles or ACEA) and, on all but one occasion, the Alliance of

Automobile Manufacturers (Auto Alliance). AAPC and ACEA also submitted a joint

65 Corporate Europe Observatory is very active in advocacy regarding the TTIP, but has not contributed as extensively to the stakeholder presentations as Public Citizen.

183 response to the joint EU-US public consultation on regulatory issues in October 2012.

This may indicate that the automotive industry is well organized at the transatlantic level and has a high convergence in regulatory preferences compared to other industries. Since the joint code is only applied to organizations with one domestic EU organization and one domestic US organization, it does not represent the transnational and transatlantic organizations that gave presentations. These include the Trans-Atlantic Business Council and the Transatlantic Consumer Dialogue as well as worldwide non-governmental organizations.

Fourth, non-governmental organizations presentations largely account for the increase in non-industry participation compared to the public consultations. Non- governmental organizations increased their participation by eleven percent. Most NGOs who participated in the consultations were environmental and animal welfare groups. In fact, animal welfare groups participated in a joint response. However, the internal composition of groups responding to the consultations did not change much over time.

Part of this increase may be attributable to the issue of sequencing and time. Negotiations and stakeholder presentations have been held over nineteen months compared to the short seven-month period in which the three consultations coded herein were conducted. Trade negotiations also gain momentum and public attention and interest increases.

Nongovernmental organizations may also be more accustomed to participating in stakeholder presentations organized around trade agreements than public consultations conducted jointly by regulatory authorities and trade regulators.

The HLWG and TTIP consultations and stakeholder presentations attempt to elicit direction from civil society and industry on the shape and content of the transatlantic

184 regulatory regime. Industry actors participate more frequently than all other civil society actors put together in both of these settings.

The HLWG and TTIP followed another successful transatlantic institution that sought to determine and serve industry actors in a regulatory regime. In 2005 the US-EU

Intellectual Property Rights Working Group was established and has since been renamed the Transatlantic Intellectual Property Rights Working Group (TIPRG). The high-level working group has regular meetings and reports both to the Transatlantic Economic

Council and US-EU summits.

The commonalities in EU and US intellectual property rights (IPR) domestic legal protections, the strength of knowledge-based industry in both of their economies, the importance of securing intellectual property for sectors of their economies, and the significant threat of international infringement of existing domestic IPR were impetuses for the creation of the group.66 The TIPRWG Action Strategy is described as focusing on three areas, “engagement on IPR issues in third countries, customs cooperation, and public-private partnerships” (Transatlantic IPR Working Group Description).

The TIPRG has also sought to directly serve industry actors to help them compete. In 2010 the Working Group developed web-based technology for small and medium enterprises (SMEs) to access existing resources to address violations of IPR by actors in third countries. The TransAtlantic IPR Web Portal brings together resources and information in the form of “country kits” for smaller firms to more readily counter violations of their IPR (TransAtlantic IPR Portal). This addressed the largest failing of existing enforcement mechanisms which was the significant financial commitment

66 The U.S. Commerce Department refers to these sectors of the US economy as “IP intensive industries” in a report which underscores the importance of secure property rights to the gross domestic product (U.S. Department of Commerce 2012, ii).

185 required to pursue IPR on the global level that allowed only large firms or coordinated industries to be able to take advantage of foreign legal remedies or inspire a World Trade

Organization dispute.

The EU and US sought to provide services to intellectual property owners, catering specifically to small and medium enterprise owners who have a difficult time enforcing their intellectual property rights abroad unlike their large multinational counterparts. This is indicative of the shift in regulatory roles for the state and for industry in order to encourage regulatory competition which continues in the TTIP.

Government Support for a Transatlantic Financial Regulatory Regime Financial services are currently addressed by a draft chapter in the TTIP agreement. European Union officials have been clear that they prefer financial services be included, as it is a stated priority of negotiations for France and the United Kingdom.

The EU Commission intends the chapter on financial services only to address the coherency of the recent wave of post-crisis financial regulation, which is already in the process of implementation in both the EU and US. In his written response to the

European Parliament about his priorities as Commissioner, EU Commissioner Jonathan

Hill named only the US in a section about the “international dimension” and explained how the EU and US would seek to service financial industry actors: “I will seek to deepen regulatory cooperation with the US on financial services, in particular to avoid companies [sic] having to comply with two sets of similar but not identical rules” (Hill

2014, 4). In a speech at the Brookings Institute, Commissioner Hill explained exactly how that enhanced regulatory cooperation would work to cement the positions of the US and EU in the international financial regulatory regime:

186 “Given the volume of business done between the EU and the U.S., it makes sense for transatlantic cooperation to go into greater detail than the level currently seen in international fora. Enhanced cooperation should allow us to consult each other at an early stage in the regulatory process. And, importantly, our consistent implementation of international standards and close supervisory cooperation would mean that the EU and the U.S. would be able to rely on each other's rules. So the benefits of transatlantic cooperation are clear. We'd provide a larger and more efficient marketplace for financial firms, giving them greater capacity to provide finance for the economy. Early troubleshooting and greater supervisory cooperation would mean we could maintain financial stability more efficiently, and we would solidify the leading role of the EU and the United States in financial regulation” (Hill 2015, 10).

The US has a fragmented position. The Treasury Secretary, Jack Lew, and Office of the USTR have articulated their position that the US position is willing to include market access issues but not regulatory harmonization efforts, while members of

Congress, including both Republicans and Democrats, would like to see financial services included in the TTIP (House of Lords 2014). In a meeting with former EU

Commissioner of Internal Market and Services Michel Barnier, in July 2013 Secretary

Lew reportedly emphasized that “prudential and financial regulatory cooperation should continue in existing and appropriate global fora, such as the G-20, Financial Stability

Board, and international standard setting bodies, consistent with existing ambitious international timelines” (Fairless and Trindle 2013).

American government resistance to including financial services in the TTIP comes from several quarters. First, US officials reiterate that there is an ongoing bilateral dialogue on harmonizing financial services regulation, via the Financial Market

Regulatory Dialogue (FMRD) which was established in 2002, as well as a multilateral process through the Financial Stability Board (Atlantic Council 2014). Second, there is a perception amongst government officials in the US that EU financial regulations are

187 weaker than American regulations.67 Despite the fragmented position of US governmental actors, the TTIP contains a chapter on financial services (Directorate

General for Trade 2016). This is an indication that the unified industry support for the inclusion of financial services is driving the institutionalization of a transatlantic financial regulatory regime.

The Atlantic Council, a nonpartisan think tank, has followed suit in developing a call for deeper cooperation on financial services and involves domestic policymakers in its call. The Council in partnership with Thomson Reuters published a report on The

Danger of Divergence: Transatlantic Cooperation on Financial Reform in October 2010.

The report co-chairs were Sharon Bowles, Member of the European Parliament and Chair of the Economic and Monetary Affairs Committee in the European Parliament, then

Senator Chuck Hagel, who was serving as the Chairman of the Atlantic Council, and

Senator Mark Warner, member of the U.S. Senate Committee on Banking, Housing, and

Urban Affairs. The taskforce assembled to create the report included seven members of the financial services industry, eight ambassadors, four academics, two representatives of the Atlantic Council, two representatives of Thomson Reuters, and a rapporteur from the

Brookings Institute. This report does not mention cooperation with other foreign powers other than two references to global competition as threats.68 Both references support the assertion that international regulatory competition is driving transatlantic cooperation.

67 See pages 143-146 for the discussion about this perception, and specifically about the differences in regulations on risk weights and capital requirements. 68 “There is a real possibility that US, or even Asian, remuneration packages will become significantly more attractive to top bankers and traders than those available to workers in The City or other financial centers in the EU. This could lead to a shift in financial market share away from the EU as other markets find it easier to attract and retain top talent. Arguably, this is a form of economic competition that is healthy, allowing different nations to take alternative approaches which eventually allow global best practices to develop. However, it seems quite possible that excessive differences between the approaches on the two shores of the Atlantic could create unnecessary disruptions of the existing financial system”

188 In December 2013, the Council and Thomson Reuters were joined by TheCityUK and assembled a task force of government officials, academics, lawyers and bankers to address “The Danger of Divergence: Financial Reform and the G20 Agenda.” The co- chairs of the report were Sharon Bowles, still a member European Parliament, Senator

Christopher Murphy, then Chairman of the US Senate Foreign Relations Subcommittee on European Affairs, US Senate and the report was prepared by Dr. Chris Brummer, C.

Boyden Gray Fellow on Global Finance & Growth at the Atlantic Council and Professor of Law at Georgetown University. The foreword in December 2013 notes that:

“As the United States and Europe continue to work to secure their financial markets after the crises of 2008-10, they also face new and growing challenges in a rapidly evolving global economy. Countries such as China, India, Brazil and other emerging markets are outpacing growth rates in the transatlantic economies, and new investment opportunities are arising around the world. […] [This report] calls on leaders to work collaboratively to ensure the future stability and vitality of the global financial system. We have come together to highlight a set of crucial ongoing issues with transatlantic financial regulatory reform, and offer an approach to addressing these. At the heart of the report is a call for enhanced and more effective cooperation on this key international challenge. We believe this is not only an economic and financial imperative for our countries, but also of great international strategic importance. Our two economies must continue to set the global standard for financial regulation and recognize the significant value in doing so” (Atlantic Council 2013, 1, emphasis added).

The Atlantic Council and policymakers politically securitize finance’s role in the global competition facing the EU and US. The report demonstrates that state support for the transatlantic financial regulatory regime is a response to international competition in finance-led growth, that finance-led growth is the strategic goal of the regime, and that

(Atlantic Council 2010, 17-18); “The global nature of the markets that use these bodies makes it imperative that regulators coordinate their approaches, even though harmonization may require that national institutions face real global competition” (Atlantic Council 2010, 35).

189 the transatlantic financial regulatory regime is seeking to impose its standards on the international financial regulatory regime.

Government support for the transatlantic financial regulatory regime is clear in the EU. In the US, despite a disjointed government position, the government has participated in creating a transatlantic financial regulatory regime. This is indicative of the steering role played by transnational industry actors in the transatlantic oarsmen cooperative.

Transatlantic Trade and Investment Partnership The TTIP negotiations formally launched in July 2013. While traditional trade agreements are generally as narrow, one-off agreements on traditional tariff barriers to trade, the TTIP is substantively distinct from these and is one of a new class of free trade agreements. First, the TTIP will principally tackle non-tariff barriers to trade. As the EU and US are service economies with few remaining tariff barriers between them remaining, a primary goal of the TTIP is to address regulatory issues, including barriers to market access. Second, the TTIP is an attempt to create a free trade area and, by establishing a transatlantic regulatory regime in several sectors, integrate the transatlantic economy. Studies that project significant economic benefits of the TTIP rely heavily on this comprehensive approach. Third, the TTIP is reactive to the lack of progress in the

Doha round of negotiations in the WTO and attempts to position common EU-US standards as those perpetuated by the international regulatory regime. This may either be pursued by seeking the ‘multilateralization’ of these standards through inclusion in a

WTO agreement or through attractive power marked by the large percentage of global trade, foreign direct investment, and gross domestic product for which the EU-US economic relationship accounts (House of Lords 2014). Finally, the TTIP is being drafted

190 to be a living agreement. That is, not just a trade agreement but rather one that establishes mechanisms to provide continuing regulatory harmonization and settle potential disputes over future regulatory developments—an ongoing transatlantic regulatory regime. One of these mechanisms is a “Horizontal Chapter” which will establish a regulatory council to resolve ongoing regulatory inconsistencies with the goal of avoiding WTO disputes

(Alemanno 2014).

One of the most controversial living elements of the TTIP is the investor-state dispute settlement (ISDS) clause. Investor-state dispute settlement clauses are included in some free trade agreements. The clauses give legal standing to foreign investors in the host state in case they face barriers that violate the host state’s treaty obligations. A dispute can be settled in arbitration proceedings or in host state domestic courts. If the

ISDS clause is included in the TTIP and the US or EU passes regulation which imposes compliance costs on the other party’s firms or changes their market access, the foreign firms can sue. Though settlement usually involves an international court or arbitration procedure, the TTIP appears to be mimicking the Chapter 11 provision in the North

Atlantic Free Trade Agreement (NAFTA), such that its ISDS clause would allow injured firms to bring a suit directly against the offending state. Consumer advocates and anti- corporation groups suggest that this can lead to a lowest common denominator approach to future regulation. If the US and EU avoid onerous regulation because it would invite lawsuits from multinational firms, they would be left with the lowest common denominator of regulation (Fielder and d’Imécourt 2014; Corporate Europe Observatory

2014a). This clause is one example of service provision by the state to industry actors as it would effectively thwart new regulations. In financial regulation domestic regulators

191 have created different rules for domestic and foreign institutions. The ISDS could prevent regulators from applying discriminatory rules in the future.69 DG Trade opened a public call in 2014 to address ISDS but the USTR did not. The EU and US stand firm that it will be included.

Recognizing that the TTIP chapter negotiations were being perceived as a

“corporate wishlist” and ruled by the interests of large multinational corporations, the

USTR and DG Trade made efforts to convince small and medium enterprises (SMEs) that the TTIP would benefit them as well (Brad Markell, Executive Director of the AFL-

CIO in House of Lords 2014, 84). SMEs are often less likely to be able to afford the cost of navigating and overcoming regulatory barriers to entry compared to multinational corporations with larger budgets and compliance departments. For this reason, the USTR and DG Trade launched a campaign of public consultations to identify the obstacles faced by SMEs and then provide information about how they may be overcome by the TTIP.

The result is a colorful brochure called the TTIP Opportunities for SMEs, joint-issued by the USTR and DG Trade, that explains how the TTIP would help small businesses

(Directorate General for Trade and the U.S. Trade Representative). The US International

Trade Commission (USITC) also released a report which catalogues the “trade-related barriers that U.S. small and medium-sized enterprises (SMEs) perceive as disproportionately affecting their exports to the European Union (EU) relative to large

69 The banking sector is the most impacted by the domestic/foreign distinction. The Federal Reserve has adopted new capital requirements for foreign banking organizations as well as annual stress tests. “The new rules were approved unanimously by the U.S. central bank but fanned a long-running spat with the European Union, where most of the affected banks are based. […]Michel Barnier, European commissioner for the internal market, said in a statement: "We will not be able to accept discriminatory measures which would have the effect of treating European banks worse than U.S. ones." […] Foreign banks have criticized the move as exporting U.S. rules overseas, saying the requirements could conflict with home-country regulations and force them to withdraw from the U.S. European banks have been considering measures to get around or mitigate the rules, including moving parts of their U.S. businesses or, like Dutch lender Rabobank, shrinking them below the Fed's asset threshold” (Armour and Tracey 2014).

192 exporters to the EU” (United States International Trade Commission 2014, iii). There may be a chapter included in the agreement on SMEs, which would shore up domestic support for the agreement. The inclusion of this chapter is an example of the US and EU providing services to industry on industry’s terms.

Industry actors have had an overwhelming influence over the agenda, content and direction of the TTIP negotiations and are now steering two regulatory states on the international level. Industry actor guidance has been cultivated through a formal transatlantic channel established by the EU and US and their domestic industry actors have reorganized at the transatlantic level; the state-level process has encouraged and provided an industry-level process as an official advisor. Their input has been crucial in deciding what mechanisms and sectors should be included in the TTIP. Industry is steering the creation of global governance institutions. Following the example of robust transatlantic regulatory cooperation in intellectual property rights, the US and EU have begun to provide service to firms seeking to compete on the international stage through a transatlantic financial regulatory regime.

Conclusions This chapter analyzed the connections between the institutions in the transatlantic financial regulatory regime. The evidence presented indicates that compared with other civil society actors industry enjoys a privileged position in the process, participates more frequently in open consultations, and has an agenda-setting power. Mapping the input and formal advisory roles between institutions revealed that the TABC/D has the most connections to the other institutions and that industry is overrepresented in the USTR and

DG Trade advisory groups. Analyzing the frequency of the contributions to the HLWG public consultations and the TTIP stakeholder presentation sessions, there is a clear

193 predominance of industry actor participation. The industry desire to have finance included in the TTIP is contrasted with TACD, Corporate Europe Observatory, Public

Citizen, the USTR and US Treasury Secretary who argue that regulatory harmonization of financial services should be excluded.

The next chapter will argue that the empirical evidence presented in this chapter indicates that a new stage of the relationship between the state and industry is emerging in the transatlantic financial regulatory regime.

194 Chapter 6: Conclusions The Transatlantic Oarsmen Cooperative In this chapter the theoretical departure point is the regulatory state and the division of labor between the state and civil society. The empirical evidence from the previous chapter indicates that a new stage of the relationship between the state and civil society is emerging in the transatlantic financial regulatory regime. In this stage, industry actors cast in a role as civil society are steering and the state is rowing. The changes to the international regulatory regime posed a challenge to the dominance of the EU and US in the international economic system. The threat incentivized industry to leverage the significant transatlantic investment relationship and seek a transatlantic solution. I call this the transatlantic oarsmen cooperative and propose the oarsman state to explain this division of labor.

Transnational financial industry actors are now seemingly united in wanting financial services to be addressed by the TTIP. Under scrutiny in the aftermath of the financial crisis, the industry has been active through transnational lobbying groups and these groups are consistent respondents to public calls and consultations. A coded list of these groups replying to each of the consultations appears in Appendix 6.

The upgrade of financial services cooperation from the Financial Markets

Regulatory Dialogue (FMRD) to the TTIP is an example of oarsmen cooperative service to industry. The financial industry considers the FMRD a failure, often citing the lack of progress and lack of high-level political participation in the dialogue. (House of Lords

2014) “While there exists a ‘Financial Services Regulatory Dialogue’ led by DG Markt

[Internal Market and Services Directorate General] and the US Treasury, which brings together financial services regulatory authorities and central banks, it is not within the

195 ambit of the TEC. Furthermore, these dialogues are not producing, so far, binding results” (European Services Forum 2012, 3). The US Chamber of Commerce and DG

Internal Market and Services have also supported the view that the FMRD is not working

(House of Lords 2014, 34; Calvino 2013). However, the FMRD itself is an example of the US and EU trying to provide services to the financial industry. The FMRD is being outpaced by industry activity lobbying to upgrade collaboration on financial services regulation from the dialogue to the TTIP.

Some consumer protection groups suggest that the financial industry sees the

TTIP as an opportunity to renegotiate and reduce the financial regulation which was passed after the financial crisis (Corporate Europe Observatory 2014c). This is a particular concern in the US because several provisions of the Dodd-Frank act have yet to be implemented and financial industry actors are still lobbying the executive and independent agencies responsible for the details of implementation.70

The voice of financial firms has been clearer and more organized within the larger group of industry actor advisors to the TTIP process but has not been isolated. Non- financial industry actors have also requested that regulation of financial services be a priority in the negotiations. Large multinational corporations, such as General Electric and Intel, are non-bank financing companies who face many of the same regulatory challenges as banks. As the Global Director of Trade and Investment Policy for Dow

Chemical explains, “[…] as large-scale manufacturers, a lot of other companies had also been weighing in on [financial services in the TTIP], as access to capital is crucial to run

70 Much of this lobbying is completed as public comments on calls for public input published by the agencies in the interest of transparency. For example, an ongoing SEC call for public input on the “SEC Regulatory Initiatives under the Dodd-Frank Act” details the many proposed regulations and allows comments on each has been open since 2010 (U.S. Securities and Exchange Commission).

196 their operations” (House of Lords 2014, 91). Financialization is critical to corporate operations and profit and this shared industry ideology has spurred an alliance of financial and non financial industry actors in the transatlantic regulatory regime.

DG Trade has revealed that financial services is tackled by a draft chapter in the

TTIP agreement, despite US government and civil opposition. This demonstrates that industry is directing the institutionalization of the transatlantic financial regulatory regime. If financial services are included in a completed agreement and—as proposed by industry associations—establish not merely coherent but retooled harmonized financial services regulations, it would be a clearer indication that the state is no longer steering by providing the content of the regime. The existing bilateral channel for EU-US regulatory cooperation on financial services, FMRD, will be upgraded so that the state can provide greater service to the financial industry. Many elements of civil society, including labor organizations, consumer protection agencies, and environmental groups have opposed

TTIP because it is perceived as putting industry in the driving seat. This opposition has been more organized and vocal in the EU.

Civil society played a dual steering and rowing role in the early 1900s in the absence of a state with regulatory expertise and bureaucracy. Prominent scholars see the development of neoliberalism as congruent to the rise of the regulatory state (Jordana and

Levi-Faur 2004), however this project demonstrates that financialization, regulatory competition and economic interdependence have heralded a new role for transnational civil society, including industry actors,: steering the state in institution building.

197 Figure 31: Oarsman State Type of State Nightwatchman Postwar State Regulatory Oarsman State State State Era 19th Century- 1945-1970s Late 1970s- Late 1990s- 1930s 1990s present Steering Civil society State State Transnational civil society and industry Rowing Civil society State Civil society States

According to the Merriam-Webster dictionary, an oarsman is, “a person who rows a boat especially as a member of a racing team” (Merriam-Webster). The European

Union and United States are attempting to create a team provide services to industry in order to compete globally; they are attempting to form a transatlantic oarsmen cooperative. A cooperative is an organization “organization that is owned and run jointly by its members, who share the profits or benefits” (Oxford 2016b). The EU and US conjointly run and benefit from the transatlantic regulatory regime, befitting the term cooperative. Each, as an oarsman state, creates domestic regulations that will support and attract industry. In the cooperative, they collaborate to provide the service of institution building to transnational civil society; most institutions are constructed to serve industry actors.

One prominent feature of the oarsman state is the nature of the service it provides civil society, and mostly industry, through rowing. In the aftermath of the financial crisis the oarsman state has gone beyond traditional service provision and is building institutions and architecture at the international level for different groups in civil society.

This project has documented that the financial crisis of 2007-2009 was a critical juncture in the international financial regime that resulted in the US and EU altering the

198 transatlantic regulatory regime to continue to compete with a strategy of finance-led growth. The institutions the transatlantic oarsmen cooperative is building are intended to help industry, and specifically the finance industry, compete globally. In the transatlantic regulatory regime, the EU and US have created transatlantic institutions dedicated to allowing transatlantic civil society to organize and direct state activity. The TABC,

TALD, and TACD are designed to give civil society a directing role and their input guides the activity of the TEC. The other institutions created by the EU and US provide more traditional service to industry, such as the TIPRG, which provides centralized access to intellectual property enforcement tools to SMEs.

This new dimension of service provided by the state to industry and the emergence of the phase of the oarsman state are connected to larger changes in the role of the state. International relations literature has questioned the autonomy of the state as global governance institutions give power to institutions, civil society, and other states.

The oarsman state empowers civil society by (i) creating institutions for global civil society to organize, (ii) creating institutions for domestic industry to compete globally, and (iii) giving members of civil society advisory groups a steering role in the regulatory regime.

The oarsman state takes direction from civil society on which institutions are needed and what services should be provided. The transatlantic oarsmen cooperative is being steered directly by industry actors representing civil society. This project has documented that in the transatlantic regulatory regime the High Level Working Group on

Jobs and Growth was steered to certain policy areas for regulatory cooperation by contributions to consultations by industry. Future research could also investigate the role

199 states or cooperatives have played in creating settings for other elements of transnational civil society, such as environmental dialogues and forums, to communicate their preferences, for state action.

The oarsman state is a concept which offers new insights into the prevalence of different forms of regulatory regimes, such as public-private partnerships and private regulatory authorities. Private industry actors seek representation in public-private or private regulatory authorities to set the agenda of regulatory cooperation between states.

Industry enjoys privileged status in the TTIP and other global governance arrangements because globalization has increased pressure on jurisdictions to attract industries and corporations through regulatory competition. Tiebout’s model of regulatory competition suggests that the US and EU are harmonizing their regulations to compete as one jurisdiction. Some regulations impose clear costs on business activity; for example, the proposed financial transaction tax. However, some regulations have unclear implications for business activity and the costs of compliance for consumers and businesses. Jurisdictions may prefer to have the costs of regulation be as clear as possible to attract, or repel, an industry. For example, jurisdictions publicize tax breaks for film production in an attempt to lure film productions to their jurisdictions. One strategy governments can utilize to understand the unforeseen costs of regulation is ask the regulated what the costs might be.

Regulatory competition is therefore a process that enhances the incentives for governments to listen to business about the unintended consequences of regulation. In the case of US and EU financial regulatory regimes the governments should be especially clear about consequences that would lead to slow or no GDP growth. The EU and US are

200 both facing incredible regulatory competition from jurisdictions with lower regulatory standards for several industries and higher growth rates. Their competition strategy is to harmonize transatlantic regulatory standards to dominate international regulatory standards. They are capable of creating these club standards because of the large size of their collective economic footprint (Drezner 2007). To be successful this choice of strategy requires the EU and US to understand what regulations are hampering growth and shaping industry and firm locational preferences. It requires the EU and US to collect, privilege and address the opinions and desires of industry. The transatlantic regulatory regime has created several institutions designed to collect this input.

Regulatory competition is perhaps never a higher-stakes game for the EU and US than it is in the area of the financial industry. Financialization has led countries to increasingly depend on the financial industry for growth. Financial regulation seen as hostile to the industry could lead to lower growth if industry actors vote with their feet and move to jurisdictions with regulation they prefer. Therefore in the oarsmen cooperative, the EU and US may continue to allow the financial industry to steer regulation that policymakers believe will increase the growth of their economies and provide service by creating dedicated, institutionalized bilateral channels. The TTIP is indicative of the new era of the oarsman state.

Broader Implications of the Oarsman State The empirical findings of this project are that several aspects of the transatlantic financial regulatory regime have changed after the financial crisis, and more surprisingly some endure. The regime has reorganized and added a trade negotiation and economic council to its decision-making structures. The regime has politically securitized the finance industry and this has led to an increase of the salience of financial industry actors

201 to the regime. The regime’s new decision-making procedures are giving industry actors a privileged position compared to the other civil society groups not only in the pre-existing institutionalized channel of the TABC but also through advisory groups to the TTIP process. The goal of creating a new harmonized set of rules is to compete against other jurisdictions. The norms and ideology of the regime remain constant: financialization and finance-led growth is ideal to compete. The original empirical contribution of this project is demonstrating that after the financial crisis the reverberations from EU, US, and international regulatory regime changes prompted the US and EU to create a transatlantic financial regulatory regime to compete in the international financial regulatory regime.

Civil society actors at all levels are reacting to the rupture in the regimes after the

2007-2009 financial crisis and some are contributing their preferences to shape them.

Domestic civil society actors, such as AAPC and ACEA, are organizing at the transatlantic level with joint responses to public consultations and stakeholder presentations. Multinational corporations and broader industry actors, such as Intel and

General Electric, have supported the financial industry actors’ demands for a harmonized transatlantic financial regulatory regime to lower compliance costs and facilitate financial flows. The institutionalized transatlantic dialogues, with the exception of the defunct

Transatlantic Labor Dialogue, are advising the Transatlantic Economic Council and analyzing developments in TTIP. Industry actors are the most frequent participants in the regime, but consumer advocacy groups are mobilizing against what they consider the EU and US pursuing a corporate wishlist in TTIP. Civil society participating in international regulatory regimes could continue to be dominated by actors with the infrastructure,

202 access, information, and financial resources to organize at the transnational level: business associations and multinational corporations.

This constellation of civil society might be aided, as it is now by the transatlantic regulatory regime, by states and global governance organizations privileging industry’s input and creating institutions for that purpose. The EU and US are casting industry in a role as civil society. This may be an attempt to legitimize the creation of a transatlantic regulatory regime that results in regulation in the interest of the regulated.

The transatlantic regulatory regime is allowing civil society, and specifically industry actors in the TABC/D, EU Expert Group, USTR ITAC, HLWG public consultations, and TTIP stakeholder presentation sessions, to steer and the EU and US governments are rowing to provide the services that would suit industry preferences. This empirical finding supports the concept of the oarsman state, an extension of the theory of the regulatory state to a new stage. The oarsman state has been precipitated by competition between regulatory regimes and in the case addressed in this project by an intensification of competition after the financial crisis.

One major implication of this new stage in the relationship between civil society and the state is that regulatory regimes will be steered by the civil society actors who are considered most vital to winning regulatory competition amongst jurisdictions. In many types of regulatory regimes, this civil society actor will be industry actors, including multinational corporations and industry associations. Industry actors may direct the content of regulation in regimes formulated at the international level through new dynamic trade agreements and technocratic dialogues. As trade agreements like the TTIP

203 are developed to not only enhance trade but also promote investment, financial industry actors will steer.

Traditional trade agreements have a direct connection to labor and citizens because of tariffs and their overt and politicized distributional consequences, but an agreement like the TTIP that focuses on mostly non-tariff barriers to trade that are regulatory in nature may be more difficult for the public to relate to. The EU has made an effort to make its negotiating positions and the general trade process more transparent, but there is no evidence that the US is taking similar steps. For advanced service economies such as the EU and US, trade agreements will increasingly target regulatory incompatibility rather than tariffs and thereby lead industry to play a steering role. This new mode of trade regulatory policy could prove more challenging to stimulate broad civil society participation than in traditional trade agreements that publics and other civil society actors are familiar with because their input is deemed less valuable and less relevant. DG Trade and the USTR have responded to calls for greater civil society participation in a number of ways, but this study reveals that it has not dramatically broadened the participation of civil society actors in existing fora.71

There are also broader consequences for not just the transatlantic regulatory regime but also other international regulatory regimes. Domestic civil society actors and domestic regulatory actors both may face challenges related to the new level of regulatory activity. Domestic civil society, and especially labor and citizen groups, will need to consider organizing at the transatlantic level and participating in the channels

71 DG Trade has responded by creating a TTIP Advisory Group with civil society participants and maintaining a Civil Society Dialogue, the members of which meet with negotiators after every two rounds of negotiations. The USTR announced in February 2014 it would create a Public Interest Trade Advisory Committee (PITAC).

204 available to them to challenge the regulatory capture established by industry. This will likely require them to pool their limited resources. For example, Public Citizen and

Corporate Europe Observatory could present on each other’s behalf at the TTIP stakeholder presentations that take place outside of their jurisdictions. Additionally domestic regulatory agencies and members of the legislative branch must prepare to face international challenges to existing domestic regulatory regimes.

The consequence of international regulatory regimes that are formulated to service industry actors organized at the international level and to win regulatory competition among jurisdictions is domestic regulatory regimes that cater to a transient elite. Multinational corporations and other civil society actors with financial resources are able to change jurisdictions to enjoy more favorable regulations. With the mobility and means to cross jurisdictions and with their perceived importance to GDP, global financial firms can shape the content of the international regulatory regime. Corollary industries may potentially also be politically securitized, creating a basis for future research.

The oarsman state also raises the more traditional concerns about supranational organizations. Domestic policymakers and consumer protection groups have warned against the rise of autocratic policymaking meant to serve industrial interests (Nader

1999; Chandler and Mazlish 2005). The centralization of regulatory policymaking removes it from domestic, democratic accountability mechanisms.

An Epilogue: Brexit This dissertation was written before the Brexit referendum. On June 23, 2016 a referendum was held in the United Kingdom on UK membership in the European Union.

By a margin of 3.78%, voters indicated their desire to leave the European Union. It is likely in the next year that the UK will invoke Article 50 of the Treaty of the European

205 Union and begin the process leaving the EU. The process of negotiating the separation of an EU member state can last up to two years after Article 50 has been invoked.

In September 2016, the UK Parliament will consider a petition requesting a second referendum on EU membership. The future of the UK’s membership in the EU is unclear.

If the UK does leave the EU, there could be repercussions for the EU, transatlantic and international financial regulatory regimes. Without the UK driving financial regulation at the EU level, member states that favor more restrictive financial regulation, for example Germany and France, might prevail. Finance firms are already seeking to move their London operations. The London-New York nexus might not drive preferences at the transatlantic level without the UK as a party to TTIP and a member of the other EU-US institutions. However, the ideological and shallow capture of EU policymakers by financialization ideology might be so significant that the oarsmen cooperative will continue to build the regime even without the UK as a party to it.

Another viable possibility is that because of the London-New York nexus the UK and US will sign an agreement on financial regulation and create a separate regulatory regime. An Anglo-American financial regulatory regime would likely become the de facto international regulatory regime because of New York and London’s importance as financial hubs. It would also eliminate the need for an EU-US financial regulatory regime. If without the UK in the EU the US and EU do not pursue a transatlantic financial regulatory regime, this will confirm this project’s assertion that the London-

New York nexus was crucial to the buildup of the transatlantic financial regulatory regime from 2008-2016. This project has explained the transatlantic response to the

206 financial crisis. If Brexit does become a critical juncture it could position the UK and US on different trajectories or make them the center of a new oarsmen cooperative.

207 Appendix 1 Account at a formal inancial institution (% age 15+) 2011

Romania 44.59163 Bulgaria 52.8249 Poland 70.19429 Italy 71.00853 Hungary 72.67432 Lithuania 73.7552 Greece 77.93986 Slovak Republic 79.58302 Czech Republic 80.65119 Portugal 81.22942 Cyprus 85.23765 United States 87.95786 Croatia 88.39102 Latvia 89.65883 Spain 93.2776 Ireland 93.88835 Luxembourg 94.58679 Malta 95.27007 Belgium 96.30613 Estonia 96.82428 France 96.98389 Austria 97.08174 Slovenia 97.14371 United Kingdom 97.20129 Germany 98.13362 Netherlands 98.65853 Sweden 98.99195 Finland 99.65125 Denmark 99.73679

0 10 20 30 40 50 60 70 80 90 100

Source: Global Partnership for Financial Inclusion 2011.

208 Account at a formal inancial institution (% age 15+) 2011

United States

EU Average

80 81 82 83 84 85 86 87 88 89 90

Source: Global Partnership for Financial Inclusion 2011.

209 Appendix 2 Saver’s Credit Amounts The amount of the credit is 50%, 20% or 10% of your retirement plan or IRA contributions up to $2,000 ($4,000 if married filing jointly), depending on your adjusted gross income (reported on your Form 1040 or 1040A). Use the chart below to calculate your credit. 2013 Saver's Credit

Married Filing Credit Rate Jointly Head of Household All Other Filers*

50% of your AGI not more than AGI not more than AGI not more than contribution $35,500 $26,625 $17,750

20% of your $35,501 - $38,500 $26,626 - $28,875 $17,751 - $19,250 contribution

10% of your $38,501-$59,000 $28,876 - $44,250 $19,251 - $29,500 contribution

0% of your more than $59,000 more than $44,250 more than $29,500 contribution

*Single, married filing separately, or qualifying widow(er) 2014 Saver's Credit

Married Filing Credit Rate Jointly Head of Household All Other Filers*

50% of your AGI not more than AGI not more than AGI not more than contribution $36,000 $27,000 $18,000

20% of your $36,001 - $39,000 $27,001 - $29,250 $18,001 - $19,500 contribution

10% of your $39,001-$60,000 $29,251 - $45,000 $19,501 - $30,000 contribution

0% of your more than $60,000 more than $45,000 more than $30,000 contribution Source: Internal Revenue Service.

210 Appendix 3 EU Public Opinion Polling on the Financial Transaction Tax, 2011

Source: Reproduced from Directorate General for Communications 2011: 11.

211 Appendix 4 EU Home Ownership Interest Rate Tax Advantages 2008

Source: Doling et al. 2012: 35.

212 Appendix 4

Source: International Monetary Fund 2011: 126.

213 Appendix 5 Index of Transatlantic Institutions, institutionalization and activities Methodology To assess the internal dynamic of the changes I categorize the two dimensions of function and institutionalization in the relevant transatlantic institutions as weak, moderate or strong in 2006, 2007 and again in 2015. For the dimension of function the activity of each institution is rated on an index with two factors: the frequency of meetings and the number of outcomes or deliverables. The degree of institutionalization is rated on an index with two factors: the number of staff and the number of members.

I counted the documents produced by each institution as well as the staff listed in official documents and on the organizations’ websites. An asterisk denotes a figure was not available to the author.

Totals 0 to 2 Weak 3 to 4 Moderate 5 to 6 Strong

Meetings Deliverables Less than annually 1 0-1 annually 1 Annually 2 2-5 annually 2 More than annually 3 More than 5 annually 3

Members Staff No members 1 No staff 1 Less than 10 2 Less than 10 secretariat 2 More than10 3 More than 10 staff 3

Index of TA Institution Activities 2006

Frequency Outcomes Total TTIP NA NA NA TABC/D 2 2 4 Moderate TACD 1 1 2 Weak TLD 1 1 2 Weak TALD 0 0 0 Weak TEC NA NA NA FMRD 2 1 3 Moderate

Index of TA Institutions Institutionalization 2006 Staff Members Total

214 TTIP NA NA NA TABC/D NA 3 3 Moderate*NA TACD NA 3 3 Moderate*NA TLD 1 3 4 Moderate TALD 2 1 3 Moderate TEC NA NA NA FMRD 1 3 4 Moderate

Index of TA Institution Activities 2007 Frequency Outcomes Total TTIP NA NA NA TABC/D 3 3 6 Strong TACD 3 3 6 Strong TLD 1 1 2 Weak TALD 1 1 2 Weak TEC 1 2 3 Moderate FMRD 2 2 4 Moderate

Index of TA Institutions Institutionalization 2007 Staff Members Total TTIP NA NA NA TABC/D 3 3 6 Strong TACD NA 3 3 Moderate*NA TLD 1 3 4 Moderate TALD 1 2 3 Moderate TEC 2 2 4 Moderate FMRD 1 3 4 Moderate

Index of TA Institutions Activities 2015 Frequency Outcomes Total TTIP 3 3 6 Strong TABC/D 3 3 6 Strong TACD 3 3 6 Strong TLD 1 1 2 Weak TALD 0 0 0 Weak TEC 1 3 4 Moderate FMRD 2 2 4 Moderate

215 Index of TA Institutions Institutionalization 2015 Staff Members Total TTIP 3 2 5 Strong TABC/D 3 3 6 Strong TACD 3 3 6 Strong TLD 1 3 4 Moderate TALD 1 1 2 Weak TEC 2 2 4 Moderate FMRD 1 3 4 Moderate

216 Appendix 6 Coding of High Level Working Group on Jobs and Growth Public Consultations In this section I code the responses to the three public consultations conducted by the High Level Working Group on Jobs and Growth in 2012. The categories applied to each respondent are adapted from those applied by DG Trade to the April 2012 submissions. The additional coding identifies a submission from an organization or business that represents the financial industry; a submission from both an EU and US organization; and a submission with content that is supportive of including financial services in an agreement between the EU and US.

In order to be coded as “financial industry represented in group/business”, the financial services industry or individual financial firms must be explicitly mentioned by the organization in the membership description.

The responses coded “supportive of including finance in trade agreement” include language that does not merely mention financial services or products but suggests they should be included in a trade agreement.

Categories Business BIZ Trade association representing business TASSC Trade union or organisation representing trade TRUN unions Consumer protection agency or representative CPA/R Government institution or regulator authority GOVT Other non-governmental organisation NGO Academic/research institution ACA/R Citizen CITZ Other OTH

Legend Indicator Code Supportive of including finance in trade SIF agreement Joint EU-US Submission J Finance industry represented in group/business FIN

Initial Joint Public Consultation April 2012 SIF Joint Code FIN Alstom BIZ American Chamber of Commerce to the European SIF TASSC Union (Amcham EU)

217 American Society for Testing and Materials (ASTM) NGO International Aromics BIZ Association of German Banks SIF TASSC fin Association of German Chambers of Commerce and SIF TASSC Industry (DIHK) BMW Group BIZ BT Group BIZ BusinessEurope-U.S. Chamber of Commerce joint TASSC submission Cecilia Siddi ACA/R Confederation of British Industry (CBI) SIF TASSC Confederation of Finnish Industries (EK) TASSC Confederation of Swedish Enterprise TASSC Council of Bars and Law Societies of Europe (CCBE) TASSC Danish Agriculture & Food Council TASSC Denmark GOVT Ernst & Young BIZ fin EUCOLAIT- European Association of Dairy Trade TASSC EuroCommerce TASSC European Apparel and Textile Confederation TASSC (EURATEX) European Chemical Industry Council (Cefic) and the TASSC American Chemistry Council (ACC) European Food and Drink industry TASSC (FoodDrinkEurope) European Fresh Produce Association (Freshfel TASSC Europe) European Generic Medicines Association (EGA) TASSC European Services Forum (ESF) TASSC European Sugar Producers Association (CEFS) TASSC European Telecommunications Network Operators' TASSC Association (ETNO) European-American Business Council (EABC) TASSC European-American Business Organization (EABO) BIZ Federation of German Chemical Industries (VCI) TASSC Federation of German Industries (BDI) TASSC Food and Drink Federation TASSC

218 Foreign Trade Association (FTA) TASSC Futures and Options Association (FOA) SIF TASSC fin German Engineering Federation (VDMA) TASSC Global Financial Markets Association (GFMA) The SIF J TASSC fin Financial Services Roundtable, the International Banking Federation (IBFed), and the International Swaps and Derivatives Association (ISDA) International Chamber of Commerce United SIF TASSC Kingdom (ICC UK) La Asociación Española de Fabricantes de Juguetes TASSC (AEFJ) Latvia GOVT Noël Scauflaire CITZ Orgalime - The European Engineering Industries TASSC Association Plateforme contre le transatlantisme NGO The Association of European Chambers of Commerce TASSC and Industry (EuroChambers) TheCityUK SIF TASSC fin Trade Commission of Spain TASSC Transatlantic Animal Welfare Council (TAWC) NGO Transatlantic Business Dialogue (TABD) SIF TASSC UVAX Concepts BIZ Total 9 1 5 2. DG Trade Public Consultation September 2012 SIF J Code FIN Alliance For Intellectual Property TASSC American Chamber of Commerce in Germany SIF TASSC American Chamber of Commerce to the European SIF TASSC Union (AmCham EU) Association le Crunch TASSC Association Nationale Pommes Poires (France) TASSC Association of European Airlines TASSC Association of German Chambers of Commerce and TASSC Industry (DIHK) Associazione italiana commercio estero (AICE) TASSC Belgium citizen CITZ Bösch Boden Spies BIZ Chamber of Commerce and Industry of Romania TASSC (CCIR) citizen CITZ

219 citizen France CITZ COCERAL is the European association of cereals, TASSC rice, feedstuffs oilseeds, olive oil, oils and fats and agrosupply trade. Confederation of British Industry (CBI) SIF TASSC Consultiaa BIZ Contined b.v. BIZ Conservation of employeers and industries of Spain TASSC (CEOE) Danish Agriculture & Food Council TASSC Deron NGO Dienes Werke GmbH & Co. KG BIZ DGLOM SIF NGO EUCOLAIT - European Association of Dairy Trade TASSC Eurometaux TASSC European-American Business Organization, Inc SIF BIZ European Apparel and Textile Confederation TASSC (EURATEX) European Automobile Manufacturers Association TASSC European Branded Clothing Alliance TASSC European Chemical Industry Council (Cefic) TASSC European Community Shipowners' Association TASSC (ECSA) European Dairy Association TASSC European Dredging Association TASSC European Federation of Origin Wines (EFOW) NGO European Feed Manufacturers' Federation (FEFAC) TASSC European Generic Medecines Association (EGA) TASSC EU Member State SIF GOVT European Sugar Producers Association (CEFS) TASSC European Services Forum (ESF)-2 SIF TASSC fin European Trade Union Committee for Education – SIF TRUN ETUCE European Trade Union Confederation SIF TRUN Federation Francaise de la Couture du Pret-a-Porter TASSC des Courtiers et des Createurs du Mode Federation of Agricultural Producers and Forest NGO Owners (MTK) FENAP TRUN FoodDrinkEurope SIF TASSC Foreign Trade Association (FTA) TASSC French business confederation (MEDEF) TASSC

220 German Engineering Federation (VDMA) TASSC I'm not a membre of something. I'm just free. CITZ Intel Corporation SIF BIZ International Confederation of EU Beet Growers TASSC (CIBE) International Fur Trade Federation TASSC IP Federation TASSC J.O. Sims Ltd BIZ Les entreprises du médicament (LEEM) TASSC Lufthansa German Airline BIZ Nexus Foundation NGO Ocean Spray International, Inc. BIZ Orgalime - The European Engineering Industries TASSC Association Organisation of Tomato Industries (OEIT) TASSC personal contribution CITZ Plateforme d’opposition au marché transatlantique-3 NGO Pominter sarl BIZ private citizen SIF CITZ Remote Gambling Association TASSC Royal Institute of British Architects (RIBA) TASSC TechAmerica Europe TASSC The International Air Cargo Association (TIACA) TASSC The Mentor Partnership BIZ Trade Secrets and Innovation Coalition (TSIC) TASSC University of Leiden, The Netherlands ACA/R voestalpine Edelstahl BIZ Wendy Cockcroft Web Design BIZ Total 12 0 1 3. October 2012 Joint solicitation on regulatory issues, SIF Joint Code FIN DG Enterprise/DG Trade and OIRA/USTR AAPC-ACEA Joint Contribution TASSC Active Pharmaceutical Ingredients Committee J TASSC (APIC), European Fine Chemicals Group (EFCG), Society of Chemical Manufacturers and Affiliates (SOCMA) Administrative Conference of the United States GOVT Advanced Medical Technology Association TASSC (AdvaMed) Airlines for America TASSC Airports Council International - North America, J TASSC

221 Airport International Council Europe Almond Board of California TASSC American Apparel and Footwear Association TASSC American Chamber of Commerce to the European TASSC Union (AmCham EU) American Chemical Society TASSC American Feed Industry Association TASSC American Forest and Paper Association TASSC American Frozen Food Institute TASSC American Meat Institute TASSC American National Standards Institute NGO American Soybean Association TASSC Amway BIZ Association of the European Self-Medication Industry J TASSC (AESGP) + Consumer Healthcare Products Association (CHPA) Asociación Española de Productores de Vacuno de TASSC Carne (ASOPROVAC) Asociación de Fabricantes de Material Eléctrico TASSC (AFME) Association of German Banks (Bankenverband) TASSC fin Association of the German Chambers of Industry and TASSC Commerce (DIHK) ASTM International NGO Biowest BIZ British American Business SIF TASSC fin Business Europe + US Chamber of Commerce SIF J TASSC Business Roundtable (BR), Trans-Atlantic Business TASSC Dialogue (TABD), European Roundtable of Industrialists (ERT) British Telecom (BT Group) TASSC Confederation of Danish Industry (DI) TASSC Confederation of European Paper Industries (CEPI) TASSC Cosmetics Europe + Personal Care Products Council J TASSC (PCPC) Deutsche Post DHL BIZ Digital Europe SIF TASSC Ebay Inc. BIZ EuropaBio + BIO (Biotechnology Industry J TASSC Organization) European Apparel and Textile Confederation TASSC (EURATEX)

222 European Association of Automotive Suppliers J TASSC (CLEPA) + Motor & Equipment Manufacturers Association (MEMA) European Association of Dairy Trade (EUCOLAIT) TASSC European Boating Industry TASSC European Chemical Industry Council (CEFIC) + J TASSC American Chemistry Council (ACC) European Crop Protection Association (ECLA) + J TASSC CropLife America (CLA) European Electronic and Fire Security Industry TASSC (EURALARM) European Engineering Industries Association TASSC (ORGALIME) European Express Association (EEA) TASSC European Federation of Pharmaceutical Industries J TASSC and Associations (EFPIA) and Pharmaceutical Research and Manufacturers of America (PhRMA) European Generic Medicines Association (EGA) + J TASSC Generic Pharmaceutical Association (GPhA) European Radiological, Electromedical and J TASSC Healthcare IT industry (COCIR) + Medical Imaging & Technology Alliance (MITA) European Renewable Ethanol (E-Pure) TASSC European Services Forum (ESF) + US Coalition of SIF J TASSC fin Services Industries (CSI) European Starch Industry Association (AAF) + Corn J TASSC Refiners Association (CRA) European Telecommunications Network Operators SIF TASSC (ETNO) European Tyre and Rubber Manufacturers' TASSC Association (ETRMA) EU-US Coalition on Financial Regulation SIF J TASSC fin Express Association of America J TASSC Federazione Nazionale Orafi Argentieri Gioellieri TASSC Fabbricanti (Confindustria Federorafi) Food and Water Watch CPA/R German Engineering Federation (VDMA) TASSC Grocery Manufacturers Association (GMA) TASSC Handmade Toy Alliance / euroSource LLC TASSC Humane Society International J NGO Information Technology Industry Council TASSC Insurance Europe TASSC fin International Confederation of Music Publishers J TASSC

223 (ICMP), National Music Publishers Association in the US (NMPA US) International Fur Trade Federation (IFTF) TASSC International Serum Industry Association TASSC Minor Crop Farm Alliance (MCFA) TASSC National Association of Manufacturers SIF TASSC National Cattlemen's Beef Association TASSC National Corn Growers Association TASSC National Electrical Manufacturers' Association TASSC (NEMA) National Foreign Trade Council, Inc. SIF TASSC National Milk Producers Federation & U.S. Dairy TASSC Export Council National Pork Producers Council TASSC National Renderers Association TASSC North American Meat Association TASSC PETA International Science Consortium NGO Plateforme contre le Transatlantisme CPA/R Procter and Gamble (P&G) BIZ Property Casualty Insurers Association of America TASSC (PCI) Rubber Manufacturers Association TASSC Ships and Maritime Equiment Association (SEA) TASSC Sidley Austin LLP SIF BIZ Securities Industry and Financial Markets TASSC fin Association (SIFMA) Spanish National Association of Manufacturers of TASSC Capital Goods (SERCOBE) Syndicat National des Fabricants de sucre de France TASSC (SNFS) Toy Industries of Europe and US Toy Industry J TASSC Association Transatlantic Animal Welfare Council (TAWC) NGO Transatlantic industry contribution (collective) SIF J TASSC fin US Chamber of Commerce on TBT/SPS issues TASSC The Wolf Group SIF BIZ fin Underwriter Labratories (UL) BIZ United States Council for International Business SIF TASSC fin U.S. Meat Export Federation TASSC Wine Institute and WineAmerica TASSC 12 16 9

224

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