US and EU cooperation on financial regulatory reform during the financial crisis: the role of interdependence

After progressively deepening political, security, trade and financial ties over successive decades, at the time the financial crisis hit Europe in 2008, the level of financial and economic interdependence between the United States and the European Union was highly developed. Examining several case studies on US and EU cooperation on financial regulatory reforms in the early stages of the financial crisis — the convergence of accounting standards across the Atlantic, the regulation of credit default swaps, the regulation of credit ratings agencies and a reinforced role for the International Monetary Fund and the Financial Stability Board — this thesis considers the role that financial and economic interdependencies played in policy decision-making. It follows an approach outlined by Keohane and Nye, considering the political processes involved in situations of complex interdependence. This research shows how, in an effort to save, protect and reinforce their respective and common financial and economic interests in each other’s markets and around the world, they developed a coordinated agenda for bilateral and international financial regulatory reform. The result was not only a deeper relationship, intensification of the transgovernmental decision-making policy process, but also greater policy convergence in several financial regulatory issue-areas. This research finds there are several important theoretical and policy implications of this cooperation. It shows how financial markets and economic interdependencies had a direct causal effect on the decisions by regulators and policy-makers to cooperate on policy reform. US and EU financial and economic interdependencies were found to have constrained the agenda of political actors and diminished their alternatives. The policy implications are that closing existing gaps in transatlantic financial governance, sustaining political will for close policy cooperation and maintaining a robust regular and effective dialogue to contain the risks of financial contagion in the transatlantic market remains imperative.