Institutional Choice in Financial Market Regulation: a Qualitative Comparative Analysis

Global financial market regulation exhibits remarkably high institutional variation across issue areas. Some regulatory institutions, like the IMF or FSB are public, while others, like the IASB, are private. Some institutions promulgate stronger rules that go along with monitoring schemes while others rely on purely voluntary regulations. In this paper, we focus on the latter aspect and ask: Under which conditions do actors choose harder or softer law in global financial market regulation? We use fuzzy-set QCA as a grounded, case-based and set-theoretic approach, which allows us to combine thick case knowledge with finding logically minimized formulas reflecting the complexity of causal paths in terms of multiple conjunctural causation. Based on relevant theories of institutional design and empirical analysis, we develop four explanatory conditions: (1) credible commitment problems, (2) distributional conflicts, (3) structural power differences and (4) complexity of the issue area. The conditions are operationalized based on various qualitative and quantitative data sources and our contextual understanding of the cases. To operationalize the outcome (hard-soft law) we code the institutions’ regulatory output. We include 20 bodies of global financial regulation in the analysis, selected on their relevance and variation on conditions and outcome.