In the Line of Fire: European Regulators after the Financial Crisis

A key argument in recent theorizing on the drivers of bureaucratic behavior is that regulatory agencies are sensitive to reputational threats and exhibit differential responses to public allegations (Gilad et al 2013; Maor et al 2013). Bureaucratic Reputation Theory is, however limited in scope and in particular lacks systematic cross-national comparisons. This paper uses media content analysis to explore the exposure and response of three European financial regulators to reputational threats in the aftermath of the financial crisis. Arguably, the financial crisis can be considered as a potentially fundamental reputational threat to regulatory agencies responsible for regulating this field. However, exposure to public critique and responses of regulators vary substantially cross-nationally. Drawing on a unique, novel and systematic content coding of major newspapers’ reporting on financial regulators reputation across the dimensions identified but not yet empirically tested (performative, moral, procedural and technical, Carpenter and Krause 2012) in Belgium, Denmark and Germany from 2000-2015, the paper compares the exposure to reputational threats, the type of threats (or critique) and the regulators’ responses. The financial crisis allows for a unique possibility for investigating regulatory agencies performing similar task, that is regulating the financial sector, facing the same crisis and hence being exposed to the same reputational threat across different national context. Departing from a most similar case design, this case selection allows for testing various explanatory variables for diagnosed patterns, including the formal powers of the regulator, its regulatory style, the wider regulatory architecture as well as the reputation enjoyed by the respective agencies before the financial crisis. This allows for testing the external validity of Bureaucratic Reputation Theory beyond the previous US and Israeli context as well as adding to the explanatory frame work in terms of identifying not only whether previous reputation and assessments of the reputational threat explains agency responses to reputational threats, but as importantly the explanatory power of factors related to the political-administrative systems including the legal framework in which the regulator operates as well as the specific regulatory style performed by the regulators within the specific countries.