Policy Learning from Crisis in Financial Regulation and Supervision: Overcoming Coordination Challenges?

The experience of a major crisis is often expected to lead to policy learning but the evidence about it is limited. In this paper we are specifically interested in policy learning from crisis in the field of financial regulation and supervision. The theoretical part of the paper discusses how various factors can influence policy learning from crisis, including the acknowledgment of failure, blame shifting, analytical tractability of the problems in the policy field, and influence of external actors like supranational organizations (especially the European Union) and academic experts from universities. The empirical goal of the paper is to explore comparatively whether the crisis of 2008-2010 has led to policy learning in financial regulation and supervision by civil servants in the Estonia, Latvia and Sweden. We are particularly interested in whether the policy actors have drawn lessons about how to enhance coordination in cross-border financial supervision and whether the policy lessons identified are similar or different across the three countries studied. Given how closely integrated the banking structures are in Sweden, Estonia and Latvia (with significant portions of the banking market in Estonia and Latvia owned by the Swedish banks), prevention of future financial crises would appear to necessitate more extensive coordination between the supervisory actors in these three countries in order to internalize the regulatory externalities. The paper uses qualitative research, including the content analysis of policy documents and semi-structured interviews with civil servants working for the finance ministries, financial supervision agencies and the central banks of the three countries (altogether 37 interviewees). Our preliminary empirical analysis indicates that policy learning in financial regulation and supervision has been more extensive in Sweden than in Estonia and Latvia, owing to more explicit acknowledgement of policy failure, more significant inputs from the academic experts, and a more critical assessment of the advice coming from the European Union.