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Fixing Financial Naikets: The Role of Accountability

Regimes


Nelvin I. Bubnick
0niveisity of New Bampshiie
muubnick@uubnick.net
hLLp://m[dubnlck.dubnlck.neL



Please uo not cite without expiesseu peimission of the authoi


Piesenteu at the 68
th
Annual Neeting of the Niuwest Political Science
Association, The Palmei Bouse, Chicago IL, Nay 22-2S, 2u1u
Dubnick, Fixing Financial Markets, 17 April 2010
1

Fixing Financial Naikets: The Role of
Accountability Regimes
Nelvin I. Bubnick
0niveisity of New Bampshiie
!"#$#%&'(
lL Lakes no more Lhan a passlna exposure Lo some news source Lo know LhaL we are enaaaed ln an
economlc crlsls based on whaL manv belleve Lo be a ma[or fallure of boLh domesLlc and alobal flnanclal
markeLs. nor does anvone readlna Lhls paper aL Lhe Llme of lLs presenLaLlon (mld-Aprll, 2010) have Lo be
ƚŽůĚ ŽĨ Ăůů ƚŚĞ ǀĂƌŝŽƵƐ ĞĨĨŽƌƚƐ ďĞŝŶŐ ŵĂĚĞ ďLJ ƉƵďůŝĐ ŽĨĨŝĐŝĂůƐ ƚŚĞ ǁŽƌůĚ ŽǀĞƌ ƚŽ ĨŝŶĚ ƐŽŵĞ ͞Ĩŝdž͟ ƚŚĂƚ ǁŝůů
prevenL (or aL leasL mlnlmlze) a recurrence. 1he so-called CreaL 8ecesslon of 2008 conLlnues Lo rlpple
Lhrouah Lhe world economv deƐƉŝƚĞ ƌĞĐĞŶƚ ƐŝŐŶƐ ŽĨ ͞ƌĞĐŽǀĞƌLJ͕͟ acLlna as a conLlnuous remlnder LhaL
someLhlna musL be done Lo deal wlLh Lhe condlLlons LhaL brouahL lL abouL. ln Lhe unlLed SLaLes we are
ln Lhe mldsL of a ma[or push Lo have Conaress adopL proposals for reform LhaL have been on Lhe Lable ln
some form for nearlv Lwo vears.
1hls paper ls Lhe second lLeraLlon of a work lnlLlallv developed ln response Lo a ĐŽůůĞĂŐƵĞ͛Ɛ ĐŚĂůůĞŶŐĞ Lo
applv whaL we know abouL accounLablllLv Lo Lhe problem of reformlna flnanclal markeLs (see uubnlck
2010). Whlle Lhe challenaer had ln mlnd a more pracLlcal response, whaL emeraed ls an onaolna efforL
Lo reframe and reLhlnk Lhe flnanclal crlsls as a problem of aovernance. 1hls paper ls, ln effecL, verslon
2.0 of LhaL lnlLlal efforL.
AĨƚĞƌ Ă ďƌŝĞĨ ĐŽŶƐŝĚĞƌĂƚŝŽŶ ŽĨ ƚŚĞ ĚLJŶĂŵŝĐƐ ŽĨ ƚŚĞ ͞ďůĂŵĞ ŐĂŵĞƐ͟ ƚŚĂƚ ŐĞŶĞƌĂƚĞ ĂŶĚ ƐŚĂƉĞ ŵƵĐŚ ŽĨ ƚŚĞ
currenL reform aaenda ln WashlnaLon, London and elsewhere, l araue for an approach LhaL aoes bevond
mere Llnkerlna wlLh LradlLlonal reaulaLorv mechanlsms and lnsLead focuses on Lhe need Lo reform Lhe
͞ŐŽǀĞƌŶĂŶĐĞ ƌĞŐŝŵĞƐ͟ ŽĨ ƚŚĞ ĨŝŶĂŶĐŝĂů ƐĞĐƚŽƌ͘ ln Lhe process, l make Lhe case for Lhe exlsLence Lo Lwo
lnLerrelaLed realmes wlLhln Lhe domaln of aovernance requlrlna aLLenLlon lf we are Lo make headwav ln
Lhe deslan of relevanL and effecLlve reforms. Cne of Lhose realmes -- Lhe reaulaLorv, whlch focuses on
aovernance Lhrouah conLrol -- has recelved conslderable aLLenLlon from analvsLs, and l hlahllahL one
efforL [bv Pood, 8oLhsLeln and 8aldwln (2001), hereafLer deslanaLed as P88] aL framlna Lhe elemenLs of
LhaL realme. 1he oLher realme -- accounLablllLv, whlch fosLers aovernance Lhrouah Lhe creaLlon,
allocaLlon and manaaemenL of expecLaLlons -- requlres more analvLlc aLLenLlon, and l offer Lhe
foundaLlons for a framework relaLed Lo LhaL realme LhaL seeks Lo emulaLe Lhe loalc of Lhe P88 efforL. l
ƚŚĞŶ ĂƌƚŝĐƵůĂƚĞ ƐŽŵĞ ďĂƐŝĐ ͞ĚĞƐŝŐŶ ƉƌŝŶĐŝƉůĞƐ͟ ƚŚĂƚ ŶĞĞĚ ƚŽ ďĞ ŬĞƉƚ ŝŶ ŵŝŶĚ ĂƐ ǁĞ ĚĞĂů ǁŝƚŚ ƚŚĞ ĨƵƚƵƌĞ of
flnanclal markeL aovernance.
Dubnick, Fixing Financial Markets, 17 April 2010
2

)*+,#-(./01/+%(/+(21'(344#&+2*5/$/26(72"'*-(
'It isnt that thev cant see the solution. It is that thev cant see the problem.`--G. K. Chesterton
under opLlmal condlLlons, developlna lona-Lerm and approprlaLe soluLlons for Lhe currenL flnanclal crlsls
requlres a Lhorouah assessmenL of Lhe problems LhaL aeneraLed Lhe slLuaLlon. Clven Lhe complexlLv of
domesLlc and alobal flnanclal markeLs, even Lhe mosL knowledaeable mlnds of Lhe era flnd Lhe analvLlc
challenae daunLlna.
1
ln lleu of some consensus or credlble paradlamaLlc framlna of Lhe crlsls,
ƉŽůŝĐLJŵĂŬĞƌƐ ŚĂǀĞ ĨŽƵŶĚ ŽƚŚĞƌ ŵĞĂŶƐ ĨŽƌ ĨŝůůŝŶŐ ƚŚĞ ͞ƉƌŽďůĞŵ ĚĞĨŝŶŝƚŝŽŶ ŐĂƉ͘͟
2
1hus, alLhouah one
would hope for a more raLlonal approach Lo deslanlna pollcles LhaL mlahL prevenL anv fuLure recurrence
of Lhe currenL problems, we are currenLlv enaaaed ln mulLlple "blame aames" LhaL wlll lnvarlablv
lnfluence Lhe shape of aovernmenL reaulaLlon of flnanclal markeLs for Lhe foreseeable fuLure.
8evond Lhe well sLudled dvnamlcs of pollLlcal blame avoldance,
3
drlvlna Lhe emeraence of "blame
aames" durlna Llmes of crlsls ls Lhe pressure on pollcvmakers as Lhev aLLempL Lo flll Lhe aap creaLed bv
lanorance or uncerLalnLv abouL Lhe problemaLlc slLuaLlon Lhev are faclna.
4
ln addlLlon, Lhose assumlna
Lhe Lask of deslanlna pollcv responses conLend wlLh a ranae of onLoloalcal cholces. AL one exLreme ls Lhe
assumpLlon LhaL Lhe unlverse aeneraLes problems (e.a., crlses, dlsasLers) randomlv -- l.e., "sLuff
happens" wlLhouL anv expllcable explanaLlon and LhaL Lhe besL we can do collecLlvelv ls prepare for
Lhose evenLuallLles LhaL seem Lo have a areaLer probablllLv of occurrlna. A second exLreme poslLlon -- leL
us call lL Lhe "acLs of aod(s)" perspecLlve -- vlews Lhe unlverse as sub[ecL Lo Lhe whlms and unfaLhomable
loalc of some supernaLural belnas or forces LhaL cannoL be sub[ecLed Lo our powers of undersLandlna.
1he besL we can do under such assumed clrcumsLances ls prepare for anv evenLuallLv and enaaae ln
conslderable pravlna or perhaps some rlLual sacrlflces.
Modern pollcv deslaners (aL leasL Lhose who accepL Lhe baslc premlses of Lhe LnllahLenmenL) assume
some poslLlon beLween Lhose Lwo exLremes, and ldeallv LhaL requlres a careful analvsls of a problemaLlc
condlLlon Lo deLermlne Lhose causal facLors whlch can be addressed bv pollcv acLlons -- or aL mlnlmum
Lhose facLors LhaL can be addressed bv pollcles deslaned Lo amelloraLe Lhe consequences or prevenL a
recurrence (Lerner & Lasswell 1931, uror 1970, 1971). lor sLudenLs of Lhe pollcv deslan process, Lhe

1 Economists and other analysts were similarly perplexed during the initial stages of the Great Depression. Keynes drew so much
attention because his perspective seemed to fill a void created by the failure of extant theories and models (Minsky 1976).
2 On the nature and dynamics of problem definition, see Dery 1984; Hoppe 2002; Rochefort & Cobb 1994.
3 For example, see Hood 2002; Weimer 2006; Ellis 1994; McGraw 1990 and 1991.
4 Studies of the blame game and similar concepts (e.g., hindsight causal analysis, attribution, issue responsibility) include Iyengar
1991; Strange and Leung 1999; Knobloch-Westerwick and Taylor 2008. Also see Kysar and McGarity 2006.
Dubnick, Fixing Financial Markets, 17 April 2010
3

facL LhaL Lhe unlverse provldes few opporLunlLles for applvlna ob[ecLlve analvsls leads Lo a fallback
poslLlon relvlna on Lhe soclal consLrucLlon of problemaLlc reallLles LhaL can be sub[ecLed Lo some pollcv
flx. Lven here, however, uncerLalnLv (and Lhus conLroversv) rules unless Lhere exlsLs some "Lheorv" or
"model" powerful enouah Lo preclude or dlrecL debaLes over Lhose facLors LhaL pollcles need Lo address.
1hls ls where "blame aames" Lvplcallv enLer Lhe plcLure.
1ŚĞ ͞ŐĂŵĞƐ͟ ƚŚĞŵƐĞůǀĞƐ ĂƌĞ ƉĂƌƚ ŽĨ Ă ĐulLural phenomenon baslc Lo modern socleLles flxaLed on
deLermlnlna and deallna wlLh Lhe causes of our collecLlve llls. AL leasL ln Lhe realm of publlc pollcv,
ƐĞĐƵůĂƌŝnjĂƚŝŽŶ ĂŶĚ ͞ƐĐŝĞŶƚŝƐŵ͟ ŚĂǀĞ ĨŽƌ ƚŚĞ ŵŽƐƚ ƉĂƌƚ ĚĞƉŽƐĞĚ ŵŽƐƚ ĨŽƌŵƐ ŽĨ ĨĂƚĂůŝƐŵ ĂŶĚ ƌĞƉůĂĐĞd
Lhem wlLh a praamaLlc bellef LhaL publlc problems can be analvzed and amelloraLed, lf noL acLuallv
͞ĨŝdžĞĚ͘͟
ÞuL oLherwlse, Lhe sallence of Lhese aames reflecLs an lnherenL blas ln our pollcv-maklna process LhaL
seeks ouL some causal facLor LhaL can be acLed upon. 1he urae Lo Lake collecLlve (pollcv) acLlon Lo deal
wlLh a publlc problem reflecLs Lhe percelved posslblllLv of Laklna effecLlve acLlon -- and Lhls, ln Lurn,
requlres some sense of a llnk beLween some facLor LhaL can be acLed upon and Lhe problem. ueborah
SƚŽŶĞ ;ϭϵϵϳͿ ƉƌŽǀŝĚĞƐ Ă ƐŝŵƉůĞ ďƵƚ ŝŶƐŝŐŚƚĨƵů ǀŝĞǁ ŽĨ ŽƉƚŝŽŶƐ ŽĨĨĞƌĞĚ ŝŶ ŚĞƌ ĨŽƵƌ ƚLJƉĞƐ ŽĨ ͞ĐĂƵƐĂů
ƚŚĞŽƌŝĞƐ͟ ƵŶĚĞƌůLJŝŶŐ ƉƵďůŝĐ ƉŽůŝĐŝĞƐ ;ƐĞĞ lŝŐƵƌĞ ϭͿ͘ AƐƐƵŵŝŶŐ ƐŽŵĞ ĚĞŐƌĞĞ ŽĨ ĐŽŶƐĞŶƐƵƐ ĂŵŽŶŐ
ƉŽůŝĐLJŵĂŬĞƌƐ ƌĞŐĂƌĚŝŶŐ ǁŚŽ Žƌ ǁŚĂƚ ͞ĐĂƵƐĞĚ͟ ;ŝ͘Ğ͕͘ ŝƐ Lo blame for) Lhe problem aL hand, Lhese
͞ƚŚĞŽƌŝĞƐ͟ ĐĂŶ ŚĂǀĞ ĐŽŶƐŝĚĞƌĂďůĞ ŝŶĨůƵĞŶĐĞ ŽŶ ƚŚĞ ĨŽƌŵ ĂŶĚ ĐŽŶƚĞŶƚ ŽĨ ƌĞƐƵůƚŝŶŐ ĚĞĐŝƐŝŽŶƐ͘ 8ůĂŵĞ ŐĂŵĞƐ
emerae where such a consensus ls lacklna, Lhe resulL belna a pollLlcal sLruaale Lo deflne Lhe cause and
(evenLuallv) pollcv cholces LhaL reflecL Lhe compeLlLlon amona confllcLlna vlews.
342/#+08(
Consequences:
9+2'+,',( :+/+2'+,',(
Unguided
Mechanical cause
intervening agent
machines
trained animals
brainwashed people
Accidental cause
nature
weather
earthquakes
machines run amok
Purposeful
Intentional cause
assault
oppression
conspiracies that work
programs that work
Inadvertent cause
intervening conditions
unforeseen side effects
neglect
carelessness
omission
Figure 1: Stone's Types of Causal Theories
(Stone 1997, p. 285)
(
Dubnick, Fixing Financial Markets, 17 April 2010
4

ln Lhe currenL debaLe over Lhe flnanclal melLdown, Lhese "aames" have Laken a varleLv of forms -- from
well LhouahL ouL sLudles Lo bloaaer ranLs Lo Cxford-sLvle debaLes -- and noL surprlslnalv are leadlna Lo
Lhe concluslon LhaL boLh evervone and no one has some causal responslblllLv Lo bear. Was lL Wall
SLreeL's faulL for Laklna advanLaae of newlv creaLed lnsLrumenLs and schemes Lo creaLe a bubble LhaL
would evenLuallv bursL? Cr was lL WashlnaLon's (or London's or Þarls') faulL for leLLlna down lLs
reaulaLorv auard allowlna Lhe banks Lo run bulllshlv Lhrouah Lhe markeLs? Þerhaps lL was Lhe faulL of Lhe
͞MĂŝŶ SƚƌĞĞƚ͟ ĨŽůŬƐ ǁŚŽ ůĞƚ ƚŚĞŵƐĞůǀĞƐ ďĞ ĐŽŶŶĞĚ ŝŶƚŽ ďĞůŝĞǀŝŶŐ ƚŚĂƚ ŚŽŵĞ ǀĂůƵĞƐ ǁŝůů ĨŽƌĞǀĞƌ ƌŝƐĞ ĂŶĚ
Lhere were no rlsks ln Laklna on Lhe debL obllaaLlons of a new morLaaae or ever hlaher credlL card
balances. A convlnclna araumenL can be (and has been) made for placlna Lhe blame aL Lhe svsLemlc level
where Lhe lnLerconnecLedness of aloballzed flnanclal markeLs made Lhe enLlre neLwork vulnerable Lo
collapse once a crlLlcal llnk (ln Lhls case, mosL polnL Lo Lhe uS houslna markeL) weakened.
WhaLever one can conclude from Lhese varlous flnaer-polnLlna exerclses, Lhe slanlflcance of Lhese blame
aames ln shaplna Lhe causal Lheorles (LhaL wlll ln Lurn shape fuLure pollcv) ls subsLanLlal. WlLhouL a
consensus vlew or coherenL framlna of whaL caused Lhe presenL crlsls, we should noL be surprlsed Lo see
ƚŚĞ ĞŵĞƌŐĞŶĐĞ ŽĨ Ă ͞ŚŽĚŐĞ ƉŽĚŐĞ͟ ƐĞƚ ŽĨ ƉƌŽƉŽƐĂůƐ ƚŚĂƚ ƌĞĨůĞĐƚ ƉŽůŝƚŝĐĂů ďĂƌŐĂŝŶŝŶŐ ĂŶĚ ĐŽŵƉƌŽŵŝƐĞ
raLher Lhan whaL economlsLs reaard as an effecLlve and coherenL packaae of soluLlons.
3
1haL noLed, Lhe resulLlna hodae podae ls noL wlLhouL lLs common Lhread. locus on Lhe rheLorlc used Lo
raLlonallze proposals puL forLh bv Lhe WhlLe Pouse and oLhers, for example, and clearlv soluLlons
proffered bv a varleLv of pollLlclans and experLs relv on !"#$%&'()*'$+&*)(#%($,-.%/*(!""%0&#!1$2$#3.
1he underlvlna loalc ls slmple and senslble on lLs face: once we deLermlne (correcLlv or lncorrecLlv) LhaL
someone or some aaencv or some process ls Lo blame, Lhe sLeps Laken Lo prevenL or mlLlaaLe a fuLure
recurrence musL necessarllv lnclude some accounL-alvlna mechanlsms.
8uL here, Loo, Lhe lack of a more developed framlna loalc proves problemaLlc for deslanlna pollcv
soluLlons. 1he lssue of whlch accounLablllLv mechanlsms are relevanL Lo Lhe currenL flnanclal crlsls
ƌĞŵĂŝŶƐ ĂŶ ŽƉĞŶ ƋƵĞƐƚŝŽŶ͘ WŚĂƚ ĚŽĞƐ ŝƚ ŵĞĂŶ ƚŽ ĚĞŵĂŶĚ ͞ŐƌĞĂƚĞƌ ĂĐĐŽƵŶƚĂďŝůŝƚLJ͟ ŽĨ ƚŚĞ ǀĂƌŝŽƵƐ ĂĐƚŽƌƐ
ln Lhe flnanclal servlces lndusLrv? 1he Lvplcal responses Lo LhaL queƐƚŝŽŶ ŐĞŶĞƌĂƚĞ Ă ƉůĞƚŚŽƌĂ ŽĨ ͞ƵƐƵĂů
ƐƵƐƉĞĐƚƐ͘͟ WĞ ǁĂŶƚ ƚŚŽƐĞ ŝŶǀŽůǀĞĚ -- wheLher bankers or reaulaLors or cusLomers -- Lo assume areaLer
͞ƌĞƐƉŽŶƐŝďŝůŝƚLJ͟ ĨŽƌ ƚŚĞŝƌ ĂĐƚŝŽŶƐ͘ Aƚ ƚŚĞ ƐĂŵĞ ƚŝŵĞ ǁĞ ĚĞƐŝƌĞ ƚŚĂƚ ĞĂĐŚ ďĞ ͞ĂŶƐǁĞƌĂďůĞ͟ ƚŽ ƚŚĞŝƌ
respecLlve prlnclpals -- shareholders for Lhe bankers and Lhe publlc for Lhe reaulaLors. lor bankers and
ŽƚŚĞƌƐ ŝŶ ƚŚĞ ĐŽƌƉŽƌĂƚĞ ƐĞĐƚŽƌ ŽĨ ƚŚŝƐ ĚŽŵĂŝŶ͕ ǁĞ ƌĞƋƵŝƌĞ ƚŚĂƚ ƚŚĞLJ ůŝǀĞ ƵƉ ƚŽ ƚŚĞ ĨŝĚƵĐŝĂƌLJ ͞ŽďůŝŐĂƚŝŽŶƐ͟
Lhev assumed when Laklna on Lhelr respecLlve poslLlons. As for Lhe reaulaLors, we assume Lhev wlll be
͞ƌĞƐƉŽŶƐŝǀĞ͟ ƚŽ ƚŚĞ ĐŽŶĐĞƌŶƐ ĂŶĚ ĐŽŵƉůĂŝŶƚƐ ďƌŽƵŐŚƚ ďĞĨŽƌĞ ƚŚĞŵ͘ AŶĚ ĨŽƌ ƚŚŽƐĞ ďĂŶŬĞƌƐ Žƌ ƌĞŐƵůĂƚŽƌƐ

5 By the spring of 2009, the main discussion among economists had moved from the academic journals to editorial op-ed pages, the
Internet and comments made on podcasts and mass media business news shows. Despite criticisms of government proposals that
emerge from the blame game, many of the same experts have contributed to cacophony that generated many and varied proposals.
Dubnick, Fixing Financial Markets, 17 April 2010
3

or cusLomers who mlahL aLLempL Lo clrcumvenL or undermlne Lhe mechanlsms esLabllshed for Lhose
varlous purposes, we waŶƚ ƚŚĞŵ ƚŽ ďĞ ͞ůŝĂďůĞ͟ ĨŽƌ ƚŚĞ ĐŽŶƐĞƋƵĞŶĐĞƐ ŽĨ ƚŚĞŝƌ ƉŽƐƐŝďůĞ ŵŝƐͬŵĂůĨĞĂƐĂŶĐĞƐ͘
1he araumenL l offer here ls LhaL wlLhouL some efforL Lo deflne Lhe problems belna addressed ln a clear
and coherenL wav, reformlna Lhe flnanclal servlces lndusLrv bv esLabllshlna areaLer accounLablllLv wlll
ƉƌŽǀĞ ĚŝĨĨŝĐƵůƚ Ăƚ ďĞƐƚ͘ 1ŚĞ ŐĞŶĞƌĂů ƌŚĞƚŽƌŝĐ ŽĨ ƌĞĨŽƌŵ͕ ŚŽǁĞǀĞƌ͕ ŚĂƐ ŶŽƚ ĨŽƐƚĞƌĞĚ ĂŶLJ ƐƵĐŚ ĐůĂƌŝƚLJ͘ ͞MĂŬĞ
ƚŚĞŵ ΀ŵŽƌĞ΁ ĂĐĐŽƵŶƚĂďůĞ͟ ŝƐ ƚŚĞ ĐůĂƌŝŽŶ ĐĂůů ĨƌŽŵ Ăůů ĐŽƌŶĞƌƐ ŽĨ ƚŚĞ ƉŽůŝĐLJ-maklna world. And aL leasL Lo
Lhls polnL ln Lhe crlsls, LhaL rheLorlcal Lheme has Lrumped anv efforL Lo focus aLLenLlon on exacLlv whaL lL
ls we wlsh Lo accompllsh bv declarlna our deslre for more accounLablllLv.
lor manv sLudenLs of Lhe publlc pollcvmaklna process, Lhe presenL slLuaLlon conflrms Lhe relevance and
ĐƌĞĚŝďŝůŝƚLJ ŽĨ ǁŚĂƚ ŝƐ ĐĂůůĞĚ ƚŚĞ ͞ŐĂƌďĂŐĞ ĐĂŶ ŵŽĚĞů͟ ;CCMͿ ŽĨ ĚĞĐŝƐŝŽŶ-maklna. Crlalnallv arLlculaLed as
ŵŽĚĞů ƚŽ ĞdžƉůĂŝŶ ĚĞĐŝƐŝŽŶ ŵĂŬŝŶŐ ŝŶ ͞ŽƌŐĂŶŝnjĞĚ ĂŶĂƌĐŚŝĞƐ͟ ƐƵĐŚ ĂƐ ƵŶŝǀĞƌƐŝƚŝĞƐ͕
6
CCM has been
Lransformed lnLo a wldelv used model of Lhe complex pollcv-maklna process ln Lhe uS whlch has
feaLures resembllna anarchlcal arranaemenLs. Þerhaps Lhe besL know of Lhese CCMs was developed bv
!ohn klnadon (1984, see Mucclaronl 1982) who descrlbed Lhe process as lnvolvlna Lhree lndependenL
͞ƐƚƌĞĂŵƐ͗͟ Ă ͞ƉƌŽďůĞŵ͟ ƐƚƌĞĂŵ, represenLlna Lhe currenL flow of lssues of poLenLlal lnLeresL Lo
ƉŽůŝĐLJŵĂŬĞƌƐ͖ Ă ͞ƉŽůŝĐLJ͟ ƐƚƌĞĂŵ ŽĨ ƉŽƐƐŝďůĞ ƐŽůƵƚŝŽŶƐ͕ ŵĂŶLJ ƐĞĞŬŝŶŐ Ă ƉƌŽďůĞŵ ƚŽ ĚĞĂů ǁŝƚŚ͖ ĂŶĚ Ă
͞ƉŽůŝƚŝĐĂů͟ ƐƚƌĞĂŵ ŽĨ ǀĂƌŝŽƵƐ ĂĐƚŽƌƐ ǁŚŽƐĞ ŝŶƚĞƌĞƐƚƐ ĂŶĚ ĂĐƚŝǀŝƚŝes varv over Llme. lor klnadon and oLhers
who use Lhls model, Lhe adopLlon of a pollcv lnvolves a forLulLous converaence of Lhese Lhree sLreams
ĚƵƌŝŶŐ Ă ͞ǁŝŶĚŽǁ ŽĨ ŽƉƉŽƌƚƵŶŝƚLJ͟ ǁŚĞŶ Ăůů ƚŚƌĞĞ ŚĂƉƉĞŶ ƚŽ ĨůŽǁ ƚŽŐĞƚŚĞƌ͘
AƉƉůŝĞĚ ǁŝƚŚŝŶ Ă ƉĂƌƚŝĐƵůĂƌ ͞ƉŽůŝĐLJ ĚŽŵĂŝŶ͟ ƐƵĐŚ ĂƐ ƚŚĞ ƌĞĨŽƌŵ ŽĨ ĨŝŶĂŶĐŝĂů ŵĂƌŬĞƚƐ͕ ƚŚŝƐ mulLlple
sLreams model helps make sense of Lhe currenL slLuaLlon where Lhe onaolna blame aame aeneraLes
ŵƵůƚŝƉůĞ ƉƌŽďůĞŵƐ ;ƌĞůĂƚĞĚ ƚŽ Ă ƌĂŶŐĞ ŽĨ ĂĐĐŽƵŶƚĂďŝůŝƚLJ ĚĞĨŝĐŝĞŶĐŝĞƐͿ ƚŽ ďĞ ͞ƐŽůǀĞĚ͕͟ ǁŝƚŚ ƉŽůŝĐLJŵĂŬĞrs
respondlna bv Lhrowlna varlous accounLablllLv-based soluLlons aL Lhose slLuaLlons LhaL seem Lo be Lhe
mosL sallenL aL a alven momenL.
ÞĞƌŚĂƉƐ ƚŚĞ ŵŽƐƚ ŽďǀŝŽƵƐ ĞdžĂŵƉůĞ ǁĂƐ ƚŚĞ ĨůĂƌĞ ƵƉ ŝŶǀŽůǀŝŶŐ ƚŚĞ ŝŶĨĂŵŽƵƐ ͞ƌĞƚĞŶƚŝŽŶ ďŽŶƵƐĞƐ͟ Ăƚ AlC͘
ln Lhe mldsL of Ă ŵĂũŽƌ ĞĨĨŽƌƚ ƚŽ ĚĞƐŝŐŶ Ă ƌĞĂƐŽŶĂďůĞ ĂŶĚ ĨĞĂƐŝďůĞ ƉůĂŶ ĨŽƌ ƌĞůŝĞǀŝŶŐ ďĂŶŬƐ ŽĨ ƚŚĞŝƌ ͞ƚŽdžŝĐ
ĂƐƐĞƚƐ͟ ;ǁŚŝĐŚ ǁĂƐ ŝƚƐĞůĨ ĨŝůůĞĚ ǁŝƚŚ ŵĂŶLJ ĚŝĨĨĞƌĞŶƚ ĂĐĐŽƵŶƚĂďŝůŝƚLJ-relaLed challenaes), Lhe prlmarv pollcv
acLors had Lo conLend wlLh a medla-fed publlc ouLraae bv ĂƚƚĞŵƉƚŝŶŐ ƚŽ ŚŽůĚ AlC ͞ƚŽ ĂĐĐŽƵŶƚ͟ ĨŽƌ ǁŚĂƚ
manv percelved as a vlolaLlon of Lhe publlc LrusL and Lreasure. LxecuLlve compensaLlon resLrlcLlons had,
ln facL, been parL of Lhe onaolna dellberaLlon of how Lo deslan Lhe 1A8Þ proaram from Lhe ouLseL, buL
Lhe lssue was plucked from a problem sLream fllled wlLh manv more (and less) slanlflcanL lssues, and Lhe
ƌĞƐƵůƚŝŶŐ ͞ĐƌŝƐŝƐ͟ ŐĞŶĞƌĂƚĞĚ Ă ĨƌĞŶnjŝĞĚ ƐĞĂƌĐŚ ĨŽƌ ĂŶ ƋƵŝĐŬ-flx response from amona Lhose found ln Lhe

6 For the original version of the model, see Cohen, March and Olsen 1972; also March and Olsen 1976 and Cohen and March
1986,
Dubnick, Fixing Financial Markets, 17 April 2010
6

sLream of pollcv lnsLrumenLs LhaL would saLlsfv Lhe whlrlwlnd LhaL brouahL Lurbulence Lo Lhe pollLlcal
sLream (Webel 2009, 1haLcher 2009).

1he AlC eplsode Lurned ouL Lo be Lhe flrsL of manv slmllar flash polnLs LhaL have emeraed lnLermlLLenLlv
ĂƐ ǀĂƌŝŽƵƐ ͞ƌĞƐĐƵĞĚ͟ ďĂŶŬƐ ƉƵďůŝĐŝnjĞĚ ƚŚĞŝƌ ĐŽŵƉĞŶƐĂƚŝŽŶ ƉůĂŶƐ͘ 8uL wlLh Lhls and oLher lssues, Lhere ls
noLhlna ln Lhe publlc record Lo lndlcaLe LhaL a more reasoned (non-CCM-llke) process ls belna applled ln
response. laced wlLh speclflc lssues relaLed Lo a parLlcular aspecL of Lhe flnanclal crlsls, pollcvmakers wlll
respond wlLh accounLablllLv mechanlsms pulled from Lhe pollcv sLream LhaL seems Lhe besL flL Lo deal
wlLh Lhe narrowlv deflned problem.
ÞƵƚ ĂŶŽƚŚĞƌ ǁĂLJ͕ ƚŚĞ ĂŵďŝŐƵŽƵƐ ŶĂƚƵƌĞ ŽĨ ƚŚĞ ƌŚĞƚŽƌŝĐĂů ĐĂůůƐ ĨŽƌ ͞ŐƌĞĂƚĞƌ ĂĐĐŽƵŶƚĂďŝůŝƚLJ͟ ĂƌĞ ƉƌŽĚƵĐŝŶŐ
Lhe expecLed response (aL leasL under Lhe CCM): an ad hoc prollferaLlon of pollcv proposals LhaL are
lncoherenL and lnconslsLenL aL besL. ln some lnsLances we have reforms deslaned (lnLenLlonallv or noL)
Lo sLrenaLhen overslahL and conLrol -- of boLh Lhe reaulaLed and Lhe reaulaLors! AL Lhe same Llme,
ĚĞŵĂŶĚƐ ĨŽƌ ŐƌĞĂƚĞƌ ͞ƚƌĂŶƐƉĂƌĞŶĐLJ͟ ĂŶĚ ŽƉĞŶ ĚĞůŝďĞƌĂƚŝŽŶƐ ĂƌĞ ŵĂĚĞ ŽĨ Ăůů ƉĂƌƚŝĞƐ͘ lŶ ŽƚŚĞƌ ĐĂƐĞƐ ǁĞ
flnd accounLablllLv mechanlsms almed aL assurlna LhaL Lhe lnLernal declslon processes (aaaln, of boLh
Lhe reaulaLed banklna communlLv and Lhe reaulaLors) follow a cerLaln paLLern and LhaL Lhe LaraeLed
ĚĞĐŝƐŝŽŶ ŵĂŬĞƌƐ ďĞŚĂǀĞ ŝŶ ĂŶ ͞ĞƚŚŝĐĂů͟ Žƌ ĂƉƉƌŽƉƌŝĂƚĞ ǁĂLJ͘ Sƚŝůů ŽƚŚĞƌ ƌĞƐƉŽŶƐĞƐ ŝŵƉŽƐĞ ͞ŚŝŐŚ ƐƚĂŬĞƐ͟
ƉĞƌĨŽƌŵĂŶĐĞ ƐƚĂŶĚĂƌĚƐ ĂŶĚ ŵĞĂƐƵƌĞƐ ĚĞƐŝŐŶĞĚ ƚŽ ĚŝƌĞĐƚ ĂŶĚ ͞ŵŽƚŝǀĂƚĞ͟ ƚŚĞ varlous aaenLs and
aaencles lnvolved.
Lach of Lhese pollcv responses make sense conslderlna Lhe narrow and speclflc naLure of Lhe problems
drawn from Lhe sLream aL a alven Llme. 1he more aeneral quesLlon ls wheLher, when Laken LoaeLher and
assessed ln Lheŝƌ ĞŶƚŝƌĞƚLJ͕ ƚŚĞLJ ĐĂŶ ĐŽŶƐƚŝƚƵƚĞ ĂŶ ĞĨĨĞĐƚŝǀĞ ĞĨĨŽƌƚ ƚŽ ĚĞĂů ǁŝƚŚ ƚŚĞ ŶĞĞĚ ĨŽƌ ͞ŐƌĞĂƚĞƌ
ĂĐĐŽƵŶƚĂďŝůŝƚLJ͟ ŝŶ ƚŚĞ ĨŝŶĂŶĐŝĂů ƐĞƌǀŝĐĞƐ ĚŽŵĂŝŶ͘
."*-/+%(21'(;'0/%+(!"#5$'-(
lf we are Lo develop soluLlons Lo Lhe currenL flnanclal crlsls, we need Lo bealn bv arLlculaLlna and
(re)framlna Lhe problem, and here we can sLarL wlLh a baslc assumpLlon abouL Lhe corporaLlzed markeL
LhaL has been accepLed bv boLh pollLlcal sclenLlsLs and economlsLs slnce aL leasL Lhe 1930s: Lhe cenLral
problems are Lhose of creaLlna and susLaŝŶŝŶŐ ͞ŐŽŽĚ ŐŽǀĞƌŶĂŶĐĞ͘͟
7

As wlLh all Lerms LhaL are parL of Lhe common parlance of pollLlcal dlaloaue (e.a., power, soverelanLv,
eLc.), reference Lo Lhe concepL of aovernance requlres some analvLlc clarlLv. Amona Lhose enaaaed ln

7 The use of the phrase "good governance¨ may be troublesome for some, not merely for its obvious normative implications, but
also due to its association with "neo-liberal¨ policies of the World Bank and Ìnternational Monetary Fund. For example, see
Finkelstein 1995 de Alcántara 1998, Weiss 2000, Doornbos 2001, Aguilera and Cuervo-Cazurra 2004, and Bourdieu 2005, pp. 10-
12. In the analytic exercise that follows I attempt to circumvent both the normative and ideological implications of the concept.
Dubnick, Fixing Financial Markets, 17 April 2010
7

Lhe analvsls of aovernmenL, however, Lhe focus of aLLenLlon ls so wlde ranalna LhaL anv sLudv musL
ĂƐƐƵŵĞ ĂŶ ĂƌďŝƚƌĂƌLJ ƉŽƐŝƚŝŽŶ ƌĞŐĂƌĚŝŶŐ ƚŚĞ ĐŽŶĐĞƉƚ͘ 1ŚƵƐ͕ ĨŽƌ ŵĂŶLJ ĂŶĂůLJƐƚƐ ŐŽǀĞƌŶĂŶĐĞ ŝƐ ͞ǁŚĂƚ
ŐŽǀĞƌŶŵĞŶƚƐ ĚŽ͟ -- Lhe Lasks and funcLlons Lhev carrv ouL as Lhe lealLlmaLe conLrollers of Lhe machlnerv
ŽĨ ƚŚĞ ŵŽĚĞƌŶ ƐƚĂƚĞ ;Ğ͘Ő͕͘ 8ŽƐĞ ϭϵϳϲͿ͘ Aƚ ƚŚĞ ŽƚŚĞƌ ĞdžƚƌĞŵĞ ĂƌĞ ƚŚŽƐĞ ǁŚŽ ƌĞŐĂƌĚ ŐŽǀĞƌŶĂŶĐĞ ĂƐ ͞ƐŽĐŝŽ-
ĐLJďĞƌŶĞƚŝĐ ƐLJƐƚĞŵƐ͟ ĂŶĚ ͞ƐĞůĨ-ŽƌŐĂŶŝƐŝŶŐ ŶĞƚǁŽƌŬƐ͟ ǁŚŝĐŚ ĞŵĞƌŐĞ ĂƐ ĂƵƚŚŽƌŝƚĂƚŝǀĞ ƐŽƵƌĐĞƐ ŽĨ ĐŽŶƚƌŽů
wlLhln and amona all forms of oraanlsed llfe -- from Lhe famllv unlL Lo Lhe modern sLaLe and alobal
neLworks (8hodes 1996, SLoker 1998). 1aklna a somewhaL mlddle course are analvsLs such as Cllver L.
Wllllamson (1994, 1998) who Lraces Lhe sLudv of aovernance Lo Lhe work of !ohn Commons (1932) and
8onald Coase (1937), and deflnes lL as Lhe examlnaLlon "of aood order and workable arranaemenLs."
lŽƌ ƉƌĞƐĞŶƚ ƉƵƌƉŽƐĞƐ ǁĞ ǁŝůů ĨŽůůŽǁ ƚŚĂƚ ͞ŵŝĚĚůĞ ƌŽĂĚ͟ ĚĞĨŝŶŝƚŝŽŶ ĂŶĚ ĂƐƐƵŵĞ ƚŚĂƚ ƚŚĞ ĨŽĐƵƐ ŽĨ ŽƵƌ
pollcv deslan Lask ls Lo arLlculaLe reforms LhaL caŶ ďĞ ŵĂĚĞ ƚŽ ĞŶŚĂŶĐĞ ƚŚĞ ͞ŐŽŽĚ ŽƌĚĞƌ ĂŶĚ ǁŽƌŬĂďůĞ
ĂƌƌĂŶŐĞŵĞŶƚƐ͟ ƚŚĂƚ ͞ŐŽǀĞƌŶ͟ ƚŚĞ ĨŽƌŵ ĂŶĚ ŽƉĞƌĂƚŝŽŶƐ ŽĨ ƚŽĚĂLJ͛Ɛ ĨŝŶĂŶĐŝĂů ŵĂƌŬĞƚƐ͘
AŶŽƚŚĞƌ ĐĞŶƚƌĂů ƚŽŽů ĨŽƌ ƚŚŝƐ ĚĞƐŝŐŶ ƚĂƐŬ ŝƐ ƚŚĂƚ ŽĨ ͞ƌĞŐŝŵĞƐ͕͟ Ă ĐŽŶĐĞƉƚ ŽĨƚĞŶ ƵƐĞĚ ďLJ ƐƚƵĚĞŶƚƐ ŽĨ
aovernance wheLher Lhev are focuslna on sLaLes, neLworks or formal oraanlsaLlons. ln convenLlonal
dlscusslons abouL pollLlcs, Lhe Lerm "realme" ls looselv applled Lo Lvpes of pollLlcal svsLems or sLvles of
aovernance (e.a., democraLlc realmes, auLhorlLarlan realmes, SLallnlsL realmes) or Lhe aovernmenL of a
counLrv LhaL has been ruled bv some person or parLv for an exLended perlod (e.a., Lhe CasLro realme,
Lhe CommunlsL realme).
8

Amona scholars who sLudv aovernance, Lhe Lerm "realme" ls Lvplcallv asslaned Lo Lhose pollLlcallv
relevanL soclal and economlc arranaemenLs LhaL endure overLlme Lo form Lhe seLLlna wlLhln whlch
aovernmenLs (and pollLlcal svsLems ln aeneral) operaLe. More speclflclLv, whaL Lhe Lerm "realme" means
analvLlcallv depends on Lhe scope, breadLh and depLh of Lhe domaln of aovernance acLlon Lo whlch lL ls
belna applled. lor some, realmes consLlLuLe Lhe baslc moral order or (ln Charles 1avlor's phrase) soclal
lmaalnarv (2004) LhaL lnfluences Lhe form, dlrecLlon and force of aovernance. ln 1avlor's sweeplna
hlsLorlcal analvsls and crlLlque of Lhe modern "secular" aae (2007), for example, Lhe Lerm realme ls
svnonvmous wlLh Lhe underlvlna "moral order" of a socleLv, and he reaards chanaes and shlfL ln realmes
(l.e., soclal lmaalnarles) Lo be rare and revoluLlonarv.
lor oLhers, realmes are reflecLed ln Lhe paLLerns of aovernance LhaL emerae wlLhln seLLlnas where Lhe
LradlLlonal sLrucLures and mechanlsms of aovernmenL are noL avallable. SLudenLs of world pollLlcs have
pald arowlna aLLenLlon Lo Lhe role LhaL boLh formal and lnformal lnLernaLlonal realmes have plaved (and

8 There is notably a negative, judgmental sense implied in the popular use of the word "regime" evidenced by the fact that the
concept is rarely applied to US regimes (typically labelled "administrations") or many parliamentary regimes (which are noted as
"governments" in the media).
Dubnick, Fixing Financial Markets, 17 April 2010
8

conLlnue Lo plav) ln LransnaLlonal relaLlonshlps and Lhe developmenL of Lhe alobal economv.
9
AnoLher
aroup of scholars, manv assoclaLed wlLh Lhe publlc cholce perspecLlve LhaL spans economlcs and pollLlcal
sclence, reaard a realme as Lhe "loalc" of aovernance (e.a., Madlsonlan, Weberlan) LhaL develops wlLhln
a consLlLuLlonal orderlna of pollLlcal and soclal relaLlonshlps (see L CsLrom 1990, Schlaaer & CsLrom
1992, see also v. CsLrom 1974). AL an even more speclflc level, sLudenLs of reaulaLorv pollcv applv Lhe
Lerm realmes Lo Lhe ranae of sLraLealc approaches used wlLhln a parLlcular pollcv arena (e.a., uLlllLv
prlclna, LelecommunlcaLlons, eLc.) (Schmalensee 1989, Welsman 1993, 8usL & 8oLhwell 1993).
lor presenL purposes, Lhe concepL of realme wlll be applled Lo Lwo aovernance arranaemenLs LhaL are
mosL sallenL ln Lhe reform of Lhe flnanclal servlces secLor. A !"#$%&'(!)*!"#+,"(lnvolves arranaemenLs of
lnsLlLuLlons, norms. values and relaLlonshlps lnLended prlmarllv Lo exerclse some -"#!""*(.*/(0'!(% over
ƚŚĞ ŐŽǀĞƌŶĞĚ ĂĐƚƐ ĂŶĚ ĂĐƚŽƌƐ͘ lƚ ŝƐ ƐŽŵĞǁŚĂƚ ƐLJŶŽŶLJŵŽƵƐ ǁŝƚŚ !ĞƐƐŽƉ͛Ɛ ͞ƌĞŐƵůĂƚŝŽŶ ĂƉƉƌŽĂĐŚ͟ ǀŝĞǁ ŽĨ
ĐĂƉŝƚĂůŝƐƚ ĞĐŽŶŽŵŝĞƐ͕ ŝŶǀŽůǀŝŶŐ ͞ĞĐŽŶŽŵŝĐ ĂŶĚ ĞdžƚƌĂ-economlc lnsLlLuLlons and pracLlces whlch help Lo
secure, lf onlv Lemporarllv and alwavs ln speclflc economlc spaces, a cerLaln sLablllLv and predlcLablllLv ln
accumulaLlon -- desplLe fundamenLal conLradlcLlons and confllcLs aeneraLed bv Lhe verv dvnamlc of
ĐĂƉŝƚĂů ŝƚƐĞůĨ͟ ;!ĞƐsop 1997, pp. 287-288) 8eaulaLorv realmes can Lake expllclL form as manlfesLed ln
leaal and bureaucraLlc frameworks
10
LhaL aeneraLe and enforce laws and rules, or Lhev can Lake more
ŝŵƉůŝĐŝƚ ĨŽƌŵ ŝŶ ƚŚĞ ĚĞǀĞůŽƉŵĞŶƚ ŽĨ Ă lŽƵĐĂƵůĚŝĂŶ ͞ŐŽǀĞƌŶŵĞŶƚĂůŝƚLJ͟ ƚŚĂƚ (ln lLs mosL exLreme) fosLers a
sense of panopLlc overslahL and monlLorlna (8ose & Mlller 1992, 8ose 1999, 2000).
Amona Lhe mosL useful, deslan-relevanL expllcaLlons of reaulaLorv realmes ls LhaL offered bv Pood,
8oLhsLeln and 8aldwln (P88) ln Lhelr waLershed 1he CovernmenL of 8lsk (2001). AlLhouah dlrecLlv
addresslna soclal rlsk pollcles ln Lhe unlLed klnadom, Lhelr sLudv and lLs comprehenslve framework has a
broader appllcablllLv Lhrouah lLs focus on Lhe varlaLlons of means and mechanlsms used Lo conLrol
lndlvldual and collecLlve rlsk behavlour across several dlfferenL pollcv domalns, lncludlna Lhose relaLed
Lo domesLlc and alobal markeLplaces. CenLral Lo Lhe P88 consLrucL (see llaure 2) are Lhree core forms of
͞ĐŽŶƚƌŽů-ĐŽŵƉŽŶĞŶƚƐ͟ ƵƐĞĚ ƚŽ ĚĞĂů ǁŝƚŚ ƌŝƐŬ ǁlLhln an examlne domaln: lnformaLlon aaLherlna,
sLandard seLLlna and behavlour modlflcaLlon. 1hese are Lhen expllcaLed ln Lerms of Lhe conLexL (Lvpe of
rlsk, publlc aLLlLudes, oraanlsed lnLeresLs) and conLenL (slze, sLrucLure and sLvle of reaulaLorv efforL). 1he
resulL ls an analvLlc frame developed Lo descrlbe (for heurlsLlc purposes) and emplrlcallv examlne (for
research and Lheorv developmenL/LesLlna purposes) (Pood & 8oLhsLeln 2001) reaulaLorv realmes almed
aL rlsk. ln addlLlon, Lhe dlmenslons used ln Lhe framework can be arLlculaLed ln forms LhaL faclllLaLe aL
leasL comparaLlve (lf noL even more svsLemaLlc) assessmenL. As slanlflcanL, Lhose lnLeresLed ln
aeneraLlna soluLlons Lo problems plaaulna a parLlcular pollcv domaln can cerLalnlv flnd value ln Lhe
deslan elemenLs lmplled ln Lhe P88 analvLlc scheme (Levl-llaur 2006).

9 This work has found explicit expression in the work of Oran Young.(1980, 1982, 1986, 1999); Stephen Krasner (1982, 1982a); and
John Ruggie 1982, 2006..
10 The "regulatory state¨ concept that reflects this view is found in Majone 1997, 1999, 1999a; also see Moran 2001.
Dubnick, Fixing Financial Markets, 17 April 2010
9

WlLhln Lhe aovernance seLLlna Lhere ls a second and qulLe necessarv complemenL Lo Lhe reaulaLorv
realme LhaL fosLers a sense of responslblllLv and obllaaLlon amona acLors ln Lhe domaln. 1hls
accountabilitv regime ŝŶǀŽůǀĞƐ ĂƌƌĂŶŐĞŵĞŶƚƐ ĂŶĚ ͞ĂƐƐĞŵďůĂŐĞƐ͟ (Sassen 2008, p. 61) of lnsLlLuLlons,
norms values and relaLlonshlps relaLed Lo Lhe facL LhaL aovernance lnvolves more Lhan a web of conLrol
componenLs and assoclaLed mechanlsms, aovernance ls based as much on some normaLlve order -- a
͞ŵŽƌĂů ĐŽŵŵƵŶŝƚLJ͟ ĐŽŶƚĞdžƚ Žƌ ͞ĂĐĐŽƵŶƚĂďŝůŝƚLJ ƐƉĂĐĞ͟ ǁŝƚŚŝŶ ǁŚŝĐŚ ƚŚĞ ŐŽǀĞƌŶĞĚ ƉŽƉƵůĂƚŝŽŶ ;ŽĨ ĂĐƚƐ ĂŶĚ
acLors) necessarllv operaLes. lL ls wlLhln LhaL normaLlve realme space LhaL sLandards of approprlaLe and
eLhlcal behavlour -- ln verv aeneral Lerm, !"#!$%&%'()*+(,+-!*#()*'./!+.!0&1'(- -- are esLabllshed and
susLalned, and where LrusL can be nurLured.

(
<#+2"#$(4#-=#+'+208(
(
Information gathering Standard setting
Behaviour
modification
Context: e.g., type
and level of risk being
tackled, nature of public
media attitudes,
configuration of lobbies
and organized interests
Example: risks
individuals can assess at
low cost vs risks
assessable only by
professionals or at high
cost
Example: risks involving
high stakes for organized
groups vs risks with no
lobby groups
Example: risks where
mass public opinion resist
state control vs regulation
with the grain`
Content:
e.g., regulatory stance,
organizational structure,
operating conventions
and regulator attitudes
Example: active vs
passive information-
seeking by regulators
Example: cost-benefit vs
technical feasibility
approaches to goal
setting
Example: price signals vs
command approaches to
control
Figure 2: HRB`s Control Components and Regulatory Regime Content and Context

Seen from a domaln perspecLlve, aovernance prlmarllv (buL noL excluslvelv)
11
lnvolves .(%0+%0!+$()%-(/+
(,+-'*2+&)3+%0!+4&)&5!4!)%+(,+!"#!$%&%'()*. A aovernance efforL lnvolves boLh, and an effecLlve
;͞ŐŽŽĚ͟Ϳ ŐŽǀĞƌŶĂŶĐĞ ĞĨĨŽƌƚ ;ǁŚŝĐŚ ŝƐ ƚŚĞ ĂƐƐƵmed aoal of pollcv reform) ls one LhaL LreaLs Lhe realmes
LhaL address Lhese Lwo funcLlons as complemenLarv.

11 Governance, of course, serves many other purposes. For example, see Rose 1973, 1978; Peters 1996; Peters & Pierre 1998.
Dubnick, Fixing Financial Markets, 17 April 2010
10

Applvlna Lhls Lwo-realme perspecLlve Lo Lhe currenL efforLs Lo reform Lhe flnanclal servlces markeL, lL
can be araued LhaL mosL currenL reform efforLs have been focused on Lhe reaulaLorv aspecLs of Lhe
ŐĞŶĞƌĂů ŐŽǀĞƌŶĂŶĐĞ ƉƌŽďůĞŵ͘ lŶ ƉĂƌƚ ƚŚŝƐ ĐŽŶƚĞŶƚŝŽŶ ƌĞĨůĞĐƚƐ ƚŚĞ ͞ďůĂŵĞ ŐĂŵĞ͟ ĂƉƉƌŽĂĐŚ ƚŚĂƚ ŚĂƐ
domlnaLed explanaLlons of whaL wenL wrona ln Lhe flnanclal secLor, ln Lhe afLermaLh of a crlsls, when all
or mosL svsLems have falled or seem ln dlsarrav, Lhe reaulaLorv mechanlsms (and reaulaLors) provlde
easv LaraeLs for blame aamers. ln addlLlon, Lhe concenLraLlon on reaulaLorv realme reforms reflecLs Lhe
facL LhaL (re)deslanlna conLrol realmes seems less challenalna Lhan deslanlna accounLablllLv realmes.
A more fundamenLal vlew of Lhe problem ls concepLual. 1he dlfflculLv wlLh deslanlna reforms for Lhe
accounLablllLv realmes of aovernance ls Lraceable Lo our lnablllLv Lo undersLand and appreclaLe whaL
Lhls lmporLanL area of aovernance enLalls. ln Lhe remalnder of Lhls paper, l explore Lhe naLure of Lhe
accounLablllLv realme wlLh Lhe lnLenL of consLrucLlna a prellmlnarv framework for Lhe deslan of reform
pollcles LhaL can offer a more effecLlve approach Lo solvlna Lhe aovernance lssues LhaL plaaue LhaL
arena. Whlle Lhe aoal ls Lo develop an analvLlc frame of equal uLlllLv and power as Lhe P88 scheme,
whaL follows should be reaarded as prellmlnarv aL besL.
>'41*+/0-0(*+,(>#"*$(72*+,*",0(
uesplLe Lhe drawbacks of followlna convenLlonal blame aamlna approaches Lo deLermlnlna Lhe
problems of a pollcv domaln ln crlsls, Lhere are some lnslahLs Lo be aalned bv examlnlna Lhe resulLlna
pollLlcal rheLorlc and pollcv responses -- especlallv Lhelr common focus on Lhe need ĨŽƌ ͞ŐƌĞĂƚĞƌ
ĂĐĐŽƵŶƚĂďŝůŝƚLJ͘͟
ln Lhe aeneral ͟ƚĂůŬ͟ ĂďŽƵƚ ƌĞĨŽƌŵ͕ ĂĐĐŽƵŶƚĂďŝůŝƚLJ ĞŵĞƌŐĞƐ ŝŶ ƚǁŽ ǀĞƌLJ ĚŝĨĨĞƌĞŶƚ ďƵƚ ŝŶƚĞƌƌĞůĂƚĞĚ
conversaLlons. ln one conversaLlon, accounLablllLv (or Lhe lack Lhereof) ls belna dlscussed as a kev facLor
ln brlnalna abouL ƚŚĞ ͞ŵĞůƚĚŽǁŶ͟ ŽĨ ĞĐŽŶŽŵŝĐ ƌĞůĂƚŝŽŶƐŚŝƉƐ ďƵŝůƚ ĂƌŽƵŶĚ ƚŚĞ ŚŝŐŚ-flvlna flnanclal
servlces lndusLrv. AccounLablllLv, ln some form or anoLher, ls vlewed bv Lhe parLlclpanLs as a problem --
perhaps 1PL problem -- LhaL needs addresslna.
1he oLher conversaLlon (occurrlna almosL slmulLaneouslv) ls focused on soluLlons raLher Lhan problems.
1he ma[or refraln here -- repeaLed consLanLlv ln more rheLorlcal seLLlnas -- ŝƐ ƚŚĞ ŶĞĞĚ ĨŽƌ ͞ŐƌĞĂƚĞƌ͟ ĂŶĚ
͞ŵŽƌĞ͟ ĂĐĐŽƵŶƚĂďŝůŝƚLJ ĂƐ Ă ;ŝĨ ŶŽƚ 1PLͿ ƐŽůƵƚŝŽŶ ƚŽ ƚŚĂƚ ǀĞƌLJ ƐĂŵĞ Đrlsls.
1hls slmple observaLlon abouL Lhe role of accounLablllLv as boLh problem and soluLlon -- cause and cure -
- ďĞŐƐ ĨŽƌ ĐůĂƌŝĨŝĐĂƚŝŽŶ ŝĨ ǁĞ ĂƌĞ ƚŽ ŵĂŬĞ ƐŽŵĞ ƐĞŶƐĞ ŽĨ ƚŚĞ ĂĐĐŽƵŶƚĂďŝůŝƚLJ ƌĞŐŝŵĞ͛Ɛ ƉůĂĐĞ ĂŶĚ ƌŽůĞ ŝŶ
aovernance. WhaL does accounLablllLv mean Lo Lhose enaaaed ln Lhese searches for causes and cures,
and ln whaL wav(s) do varlous vlews of accounLablllLv lmpacL on our undersLandlna of Lhe flnanclal crlsls
and/or our responses Lo lL?
lnLeresLlnalv, Lhe mvoplc obsesslon wlLh !"#$%&'(!)*conLrol comes lnLo plav aL Lhls [uncLure. ln
ĚŝƐĐƵƐƐŝŽŶƐ ĚĞĂůŝŶŐ ǁŝƚŚ ƚŚĞ ƐĞĂƌĐŚ ĨŽƌ ĐĂƵƐĞƐ ŽĨ ƚŚĞ ĐƌŝƐŝƐ ;ŝ͘Ğ͕͘ ƚŚĞ ͞ďůĂŵĞ ŐĂŵĞ͟Ϳ͕ ƚŚĞ ĨĂŝůƵƌĞ ŽĨ
Dubnick, Fixing Financial Markets, 17 April 2010
11

accounLablllLv ls Lvplcallv (lf noL alwavs) arLlculaLed ln Lerms of some speclflc lnsLlLuLlonal mechanlsm or
pollcv lnsLrumenL fallure. 1he llsL of suspecLed culprlLs ranaes from Lhe lnsufflclencv of baslc manaaerlal
conLrols and lnLernal corporaLe aovernance mechanlsms, Lo Lhe lack of Lransparencv and due dlllaence,
Lo lax enforcemenL of banklna and securlLles reaulaLlons and Lhe absence of effecLlve overslahL of
reaulaLors bv execuLlve, lealslaLlve or [udlclal offlclals. ShorLcomlnas abound ln all Lhese assessmenLs of
Lhe problems -- shorLcomlnas ln Lhe sense LhaL Lhe reaulaLor or reaulaLed parLv ls 1$2'*0('*%+3+0#*$4*'(*
"54"/'&'+(02. 8eaulaLorv realme conLrol componenLs overlap wlLh -- perhaps are acLuallv embedded ln
(CranoveLLer 1983, 1992, also 8ourdleu 2003) -- Lhe accounLablllLv realme. Lach and all are reaarded as
parL of an accounLablllLv lnfrasLrucLure composed of varlous Lools (e.a., overslahL, audlLs, lnspecLlons,
lnvesLlaaLlons, chalns of command, eLc.) LhaL share a deflnlna characLerlsLlc LhaL dlsLlnaulshed Lhem
from oLher conLrol componenLs: each operaLes bv esLabllshlna accounL-alvlna relaLlonshlps amona aL
leasL Lwo parLles ln an oraanlzed efforL LhaL addresses the need to dea| w|th unaddressed or unfu|f|||ed
expectat|ons.
12

vlewed narrowlv as accounL-alvlna mechanlsms or lnsLrumenLs, accounLablllLv ls a means for Lhe
manaaemenL of expecLaLlons and Lakes on Lhe characLerlsLlcs of a Lechnlcal feaLure of Lhe flnanclal
markeLplace, a funcLlonal (ofLen lnsLlLuLlonallzed) parL of Lhe economlc, pollLlcal and soclal relaLlonshlps
LhaL comprlse Lhls secLor. lL follows LhaL when Lhe focus Lurns Lo fallures of accounLablllLv (l.e., Lhese
͞ŵĞĐŚĂŶŝƐŵƐ͟Ϳ ĂƐ ƚŚĞ ĐĂƵƐĞ ŽĨ ƚŚĞ ĐƵƌƌĞŶƚ ĐƌŝƐŝƐ͕ ĂƚƚĞŶƚŝŽŶ ŶĞĐĞƐƐĂƌŝůLJ ƚƵƌŶƐ ƚŽ ƚŚĞ ĂďƐĞŶĐĞ Žƌ
ďƌĞĂŬĚŽǁŶ ŽĨ ƐŽĐŝĂů ƌĞůĂƚŝŽŶƐŚŝƉƐ ĂŶĚ ĞdžƉĞĐƚĂƚŝŽŶƐ͘ 1ŚĞ ͞ĐƵƌĞ͟ ŝŵƉůŝĞĚ ŝŶ ƚŚĂƚ ĂŶĂůLJƐŝƐ ŵŽƐƚ ŽĨƚĞŶ ĨŝŶĚƐ
expresslon ln proposals Lo repalr or replace Lhe falled or damaaed mechanlsms.
8uL such mechanlsms musL be reaarded as onlv parL of Lhe accounLablllLv realme consLrucL. An
alLernaLlve dlmenslons of accounLablllLv ls also aL work ln Lhe cause/cure dlscusslons, one LhaL reaards
accounLablllLv as plavlna more of a normaLlve role Lhan a Lechnlcal one. Pere Lhe Lalk ls noL abouL Lhe
fallure of mechanlsms or lnsLrumenLs of accounL-alvlna, buL raLher the fa||ure of more amorphous

12 The idea of an "account-giving relationship¨ demands some clarification at this juncture in regard to four points. The first is to
highlight that we are dealing with social relationships, and therefore these have to be understood as fundamentally social
mechanisms despite the fact that we often perceive them too narrowly in strictly formal or legalistic terms.
Second, although frequently associated with the logic of principal-agent relations (especially when operationalized in academic
models), such relationships do not necessarily involve hierarchical or super/sub-ordinate arrangements. At least in theory (and more
often than is often acknowledged, in practice), account-giving relations can be horizontal as well as vertical, bottom-up as well as
top-down -- and even circular in form (e.g., the "reflective¨ practitioner).
Third, these relationships are based as much (if not more) on expectations as they are in actions. Often it is the anticipation of
claims on one's account-giving capacity that determines the effectiveness of an accountability mechanism. Anxiety about who might
seek an account, what action one might be held to account for, and when one might called to account -- all play major roles in
shaping the relevant relationships. For more on this point, see Darwall 2006).
Finally, these account-giving relationships cannot be viewed in isolation from other social relations, including other account-giving
claims. The existence of multiple, diverse and potentially conflicting expectations is itself to be expected in the world of
accountability mechanisms.
Dubnick, Fixing Financial Markets, 17 April 2010
12

cond|t|ons that foster expectat|ons management such as a moral sense of responslblllLv, flduclarv
obllaaLlons, responslveness, llablllLv, eLc. 1hese reflecL Lhe ldea of accounLablllLv as provldlna Lhe moral,
normaLlve seLLlna for Lhe operaLlons of flnanclal markeLs. 1he emphasls here ls on Lhe premlse LhaL anv
seL of soclal relaLlonshlps -- especlallv Lhose lnvolvlna complex lnLeracLlons and LransacLlon such as
found ln alobal flnanclal markeLs -- requ|res some comm|tment to a funct|ona| and effect|ve set of
expectat|ons |n the form of ru|es, norms, mores. Amona Lhose converslna from Lhls perspecLlve, lL ls
ƚŚĞ ĂďƐĞŶĐĞ Žƌ ŝŶĞĨĨĞĐƚŝǀĞŶĞƐƐ Žƌ ĐŽůůĂƉƐĞ ŽĨ ƚŚĞƐĞ ŶŽƌŵĂƚŝǀĞ ;ŝ͘Ğ͕͘ ͞ŵŽƌĂů͟Ϳ ƐƚĂŶĚĂƌĚƐ ƚŚĂƚ ŝƐ Ăƚ ƚŚĞ
hearL of Lhe currenL crlsls. 1ŚĞ ŝŵƉůŝĞĚ ͞ĐƵƌĞ͟ ǁŽƵůĚ ďĞ ǁŚĂƚĞǀĞƌ ƉŽůŝĐŝĞƐ ǁŚŝĐŚ mlahL resLore or
reconsLrucL LhaL normaLlve lnfrasLrucLure (+,, Lane 1997, also Mav 2003, 2007).

llaure 3 aLLempLs Lo summarlze Lhe lmpllcaLlons of Lhls dlsLlncLlon (slmpllfled as accounLablllLv-as-
[conLrol] mechanlsm and accounLablllLv-as-[normaLlve] seLLlna) for Lhe dlscusslons abouL causes and
cures of Lhe presenL crlsls.
(
(
.#4&0(#+8(
Perspective: Cause Cure
Accountab|||ty-as-
Mechan|sm
(|.e., contro|)
Ia||ure of |nstrument
keform, rep|ace, repa|r the
|nstrument
Accountab|||ty-as-5ett|ng
(|.e., normat|ve
|nfrastructure of
expectat|ons)
Absence or co||apse of
norms, mores, standards
keestab||sh|ng, rebu||d|ng
mora| commun|ty based on
effect|ve norms/standards
Figure 3: Accountability as Cause/Cure
(
1he lmpllcaLlons of Lhls framework for deslanlna pollcv responses Lo Lhe flnanclal crlsls wlll be dlscussed
ln Lhe nexL secLlon, buL Lhere are Lwo addlLlonal observaLlons LhaL requlre aLLenLlon before movlna Lo
LhaL polnL.
llrsL ls Lhe exLenL Lo whlch one of Lhe perspecLlves domlnaLes Lhe mosL lmporLanL of Lhe conversaLlons
abouL Lhe flnanclal crlsŝƐ͘ WŚĞƌĞ ƚŚŽƐĞ ĐŽŶǀĞƌƐĂƚŝŽŶƐ ƌĞĂůůLJ ͞ŵĂƚƚĞƌ͟ -- ln Lhose venues where
Dubnick, Fixing Financial Markets, 17 April 2010
13

ƉŽůŝĐLJŵĂŬĞƌƐ ƚĂůŬ ĂďŽƵƚ ͞ĐĂƵƐĞƐ ĂŶĚ ĐƵƌĞƐ͟ -- Lhe mechanlsm perspecLlve drowns ouL Lhe normaLlve
lnfrasLrucLure (seLLlna) vlew. ln Lhls and oLher areas where Lhe lssue ls Lhe breakdown of an onaolna
ƐLJƐƚĞŵ͕ ͞ƚĞĐŚŶŝĐĂů͟ ĞdžƉůĂŶĂƚŝŽŶƐ ƵƐƵĂůůLJ ŚŽůĚ ƐǁĂLJ͕ ĂŶĚ ŶŽƚ ŶĞĐĞƐƐĂƌŝůLJ ďĞĐĂƵƐĞ ƚŚĞLJ ĂƌĞ ŵŽƌĞ ĐƌĞĚŝďůĞ
Žƌ ĐŽŶǀŝŶĐŝŶŐ͘ 8ĂƚŚĞƌ͕ ĂƐ ĐŽŵƉůĞŵĞŶƚƐ ƚŽ ƚŚĞ ƌĞŐƵůĂƚŽƌLJ ĐŽŶƚƌŽů ƌĞŐŝŵĞ͕ ƚŚĞLJ ƚĞŶĚ ƚŽ ďĞ ͞ĞĂƐŝĞƌ͟ ƚŽ
arasp concepLuallv and have Lhe beneflL of aeneraLlna relaLlvelv qulck soluLlons. lf Lhe problem ls
deLermlned Lo be lax enforcemenL of banklna reaulaLlons, Lhen enhance Lhe enforcemenL power of
ƌĞŐƵůĂƚŽƌƐ ĂŶĚ ďĂĐŬ ŝƚ ǁŝƚŚ ŵŽƌĞ ĨƵŶĚŝŶŐ͘ lĨ ƚŚĞ ͞ƉƌŽďůĞŵ͟ ŝƐ ůĂĐŬ ŽĨ ƚƌĂŶƐƉĂƌĞŶĐLJ ŝŶ ƚŚĞ ŽƉĞƌĂƚŝŽŶƐ of
hedae funds or prlvaLe equlLv flrms, Lhen requlre more reporLlna and openness. ln boLh examples, Lhere
ls a clear sense LhaL reaulaLorv conLrol wlll be enhanced, buL onlv a vaaue hope for Lhe more responslble
behavlor on Lhe parL of Lhe reaulaLed parLles. neverLheless, such reforms are proffered as havlna
enhanced accounLablllLv. WheLher Lhev acLuallv do so (l.e., fosLered more responslble behavlor) ls an
emplrlcal quesLlon.
Whlch leads Lo a second polnL, namelv Lhe lronlc Lendencv of pollcvmakers Lo relv on Lhe rheLorlc of
accounLablllLv ln Lhelr rheLorlcal raLlonallzaLlons for mechanlsm-focused pollcv declslons. 1he
[usLlflcaLlon for underLaklna reaulaLorv-ďĂƐĞĚ ƌĞĨŽƌŵƐ ŝƐ ƚŽ ĐƌĞĂƚĞ Ă ͞ŵŽƌĞ ƌĞƐƉŽŶƐŝďůĞ͟ ŵĂƌŬĞƚ Žƌ ƚŽ
ŵĂŬĞ ĐĞƌƚĂŝŶ ĂĐƚŽƌƐ ͞ĂŶƐǁĞƌĂďůĞ͟ ĂŶĚ ͞ůŝĂďůĞ͟ ĨŽƌ ƚŚĞŝƌ ĂĐƚŝŽŶƐ͘ 1ŚĞƌĞ ŝƐ ĂŶ ĂƐƐƵŵĞĚ ĞĨĨĞĐƚŝǀĞ ůŝŶŬ
beLween Lhe exerclse of conLrol and Lhe enhancemenL of responslble behavlor -- a llnkaae LhaL has
rarelv been LesLed ln Lhe aovernance conLexL leL alone emplrlcallv proved. Lach of Lhese rheLorlcal
flourlshes aL mlnlmum lmplles Lhe exlsLence of LhaL connecLlon and beas Lhe quesLlon abouL Lhe need
for some moral communlLv LhaL provldes a normaLlve undersLandlna of whaL consLlLuLes (lr)responslble
and (ln)approprlaLe behavlor.
1o summarlze brleflv, when lL comes Lo accounLablllLv realme lssues ralsed bv Lhe currenL flnanclal crlsls,
(1) Lhere are aL leasL Lwo conversaLlons Laklna place, one focused on Lhe role of accounLablllLv (or lack
ƚŚĞƌĞŽĨͿ ŝŶ ĐƌĞĂƚŝŶŐ ƚŚĞ ĐƌŝƐŝƐ ;ƚŚĞ ͞ĐĂƵƐĞ͟ ĐŽŶǀĞƌƐĂƚŝŽŶͿ Ănd Lhe oLher poslLlna accounLablllLv as a ma[or
ƉĂƌƚ ŽĨ ƚŚĞ ƐŽůƵƚŝŽŶ ;ƚŚĞ ͞ĐƵƌĞ͟ ĐŽŶǀĞƌƐĂƚŝŽŶͿ͖ ;ϮͿ ďĞŶĞĂƚŚ ƚŚĞ ƐƵƌĨĂĐĞ ŽĨ ƚŚĞƐĞ ĐŽŶǀĞƌƐĂƚŝŽŶƐ ĂƌĞ ƚǁŽ
verv dlfferenL perspecLlves on accounLablllLv, one perspecLlve vlewlna lL as soclal mechanlsms and pollcv
ŝŶƐƚƌƵŵĞŶƚƐ ƌŽŽƚĞĚ ŝŶ ͞ĂĐĐŽƵŶƚ-ŐŝǀŝŶŐ͟ ƌĞůĂƚŝŽŶƐŚŝƉƐ ;ĂĐĐŽƵŶƚĂďŝůŝƚLJ-as-mechanlsm) and Lhe oLher
seelna accounLablllLv as provldlna Lhe moral seLLlna for Lhe markeL (accounLablllLv-as-normaLlve
lnfrasLrucLure), (3) amona pollcvmakers (Lhe conversaLlons LhaL reallv maLLer), Lhe mechanlsm vlew
prevalls as Lhev seek Lo maLch conLrol-based Lechnlcal soluLlons Lo Lechnlcal problems percelved as
reaulaLorv, (4) buL Lhe rheLorlc of accounLablllLv-based reform remalns normaLlve-based and ls Lled Lo
sense LhaL whaL ls needed ls more responslble, responslve, answerable, eLc. behavlor amona markeL
acLors.
underlvlna Lhe presenL efforL ls Lhe bellef LhaL Lhere ls a more subsLanLlal case Lo be made for Laklna
accounLablllLv-as-seLLlna (normaLlve lnfrasLrucLure) vlew serlouslv, noL onlv as parL of a more aeneral
Lheorv of pollcv domaln aovernance, buL also as Lhe basls for pollcles LhaL can have a real lmpacL on Lhe
fuLure operaLlons of alobal and naLlonal flnanclal markeLs. 8uL Lo puL LhaL bellef Lo work requlres LhaL
we develop an P88-llke analvLlc frame LhaL can do more Lhan help us appreclaLe Lhe lmporLance of Lhe
Dubnick, Fixing Financial Markets, 17 April 2010
14

ĂĐĐŽƵŶƚĂďŝůŝƚLJ ƌĞŐŝŵĞ ĂƐ ƉĂƌƚ ŽĨ ŐŽǀĞƌŶĂŶĐĞ͘ WĞ ŶĞĞĚ Ă ͞ĨƌĂŵŝŶŐ͟ ƚŚĂƚ ĂůůŽǁƐ ƵƐ ƚŽ ĨŽĐƵƐ ŽŶ ƚŚŽƐĞ
elemenLs LhaL comprlse Lhe accounLablllLv seLLlna ln order Lo faclllLaLe efforLs Lo descrlbe Lhe realme,
assess lLs effecLlveness and (where posslble) asslsL ln Lhe deslan of soluLlons Lo Lhe broader aovernance
problems.
3"2/4&$*2/+%(;'0/%+(?=2/#+0(
An efforL Lo emulaLe Lhe P88 framework for accounLablllLv realmes runs lnLo an lmmedlaLe problem, for
Lhe core componenLs of accounLablllLv (as lmaalned here) encompasses normaLlve seLLlnas as well as
͞ŵĞĐŚĂŶŝƐŵƐ͘͟ Whlle conLexLual facLors plav a role ln Lhe P88 scheme, Lhev do so as lndependenL or
lnLervenlna varlables lmpacLlna Lhe form and conLenL of Lhe core conLrol-componenLs. 8uL, as noLed
below, ln accounLablllLv arranaemenLs manv aspecLs of Lhe seLLlna are Lhemselves core componenLs of
Lhe realme.
8ĞLJŽŶĚ ŝŶĐůƵĚŝŶŐ ƚŚŽƐĞ ͞ƐĞƚƚŝŶŐ͟ ĨĂĐƚŽƌƐ ĂƐ ĐŽƌĞ ĐŽŵƉŽŶĞŶƚƐ͕ ŽƵƌ framlna should be meeL Lwo
addlLlonal, lnLerrelaLed crlLerla. llrsL, lL should be emplrlcallv lncluslve and capable of encompasslna Lhe
ƌĂŶŐĞ ŽĨ ĂĐƚŝŽŶĂďůĞ ŽƉƚŝŽŶƐ ƚŚĂƚ ĂƌĞ ƉƌŽƉŽƐĞĚ ƚŽ ĚĞĂů ǁŝƚŚ ƚŚĞ ƉƌŽďůĞŵĂƚŝĐ ĐŽŶĚŝƚŝŽŶƐ ͞ŐƌĞĂƚĞƌ
ĂĐĐŽƵŶƚĂďŝůŝƚLJ͟ ŝƐ ŝŶƚĞŶĚed Lo address. Second, Lhe opLlons lL lncludes should be problem relevanL and
expresslv almed aL deallna wlLh Lhe causes and/or condlLlons of Lhe problemaLlc slLuaLlon. Lxcluded
under Lhls framlna scheme would be pseudo-proposals LhaL amounL Lo mere svmbollc expresslons of Lhe
need for reforms and Lhose deslaned Lo solve problems ouLslde Lhe scope of pollcv problem. Whlle
svmbollc aesLures such as a rheLorlcal call for maklna Lhe flnanclal svsLem more accounLable mav serve
lmporLanL pollLlcal purposes (e.a., for Lhe moblllzaLlon or acqulescence of publlcs)(Ldelman 1964, 1971),
Lhev would fall ouLslde our frame unless accompanled bv some arLlculaLed aaenda for reform. Slmllarlv,
opLlons almed aL more fundamenLal chanaes (e.a., chanalna human naLure or radlcallv alLerlna Lhe
ŐĞŶĞƌĂů ĞĐŽŶŽŵŝĐ ƐLJƐƚĞŵͿ ǁŽƵůĚ ďĞ ŽƵƚƐŝĚĞ ƚŚĞ ƐĐŽƉĞ ŽĨ ƚŚĞ ĨƌĂŵŝŶŐ ŐŝǀĞŶ ŝƐ ͞ƉƌĂĐƚŝĐĂů͟ ĨŽĐƵƐ͘
1here have been aL leasL Lhree expllclL efforLs Lo frame accounLablllLv realmes, Lhe flrsL relaLed Lo
reforms LhaL reshape Lhe conLexL and conducL of accounLlna, audlLlna and oLher flnanclal manaaemenL
operaLlons,
13
a second ŝŶǀŽůǀĞĚ ƚŚĞ ĚĞǀĞůŽƉŵĞŶƚ ŽĨ ĂŶ ͞ĂĐĐŽƵŶƚĂďŝůŝƚLJ ŵŽĚĞů͟ ĚĞǀĞůŽƉĞĚ ďLJ lŝƐƐĞ Θ
8ralLhwalLe (1988, 1993) Lo deal wlLh corporaLe crlme, and a Lhlrd examlnlna Lhe lncreaslnalv complex
arena of nonproflLs operaLlna ln a alobal conLexL.
14
AlmosL all LreaL accounLablllLv as a varlanL of
ƌĞŐƵůĂƚŝŽŶ ĂŶĚ ĐŽŶƚƌŽů͕ ĂŶĚ ŶŽƚ ƐƵƌƉƌŝƐŝŶŐůLJ ĂƌĞ ƉƌĞŽĐĐƵƉŝĞĚ ǁŝƚŚ ǀŝĞǁŝŶŐ ŝƚ ŝŶ ͞ŵĞĐŚĂŶŝƐŵ͟ ƚĞƌŵƐ͘ As
such, Lhev fall Lo sLress Lhe dlsLlncLlon beLween Lhe dlfferenL role LhaL such mechanlsms plav ln realmes

13 The major work in this area is attributable to James Guthrie and his colleagues at the University of Sydney. See English &
Guthrie 1991; Guthrie 1992, 1993; Parker & Guthrie 1993. Also see Broadbent & Guthrie 1992.
14 See the work of Alnoor Ebrahim and his colleagues: Ebrahim 2003, 2003a, 2006, 2009; Ebrahim & Heerz 2008; Ebrahim &
Weisband 2007 (esp. Weisband & Ebrahim 2007).. Also see Jordan & Tuijl 2006.
Dubnick, Fixing Financial Markets, 17 April 2010
13

of conLrol and realme of manaaed expecLaLlons (l.e., responslblllLv). 1he Lask here ls Lo consLrucL a
framework LhaL sLresses LhaL dlsLlncLlon (+, Mashaw 2006).

1urnlna speclflcallv Lo Lhe core componenLs of Lhe accounLablllLv realme, Lhe ranae of opLlons for
͞ŐƌĞĂƚĞƌ ĂĐĐŽƵŶƚĂďŝůŝƚLJ͟ ƌĞĨŽƌŵƐ ĐĂŶ ďĞ ƵƐĞĨƵůůLJ ĨƌĂŵĞĚ ďLJ ĨŽĐƵƐŝŶŐ ŽŶ ƚǁŽ ĐŽŵŵŽŶ ĨĞĂƚƵƌĞƐ ŽĨ ŵŽƐƚ
proposals: (1) Lhe exLenL Lo whlch Lhev seek Lo speclfv Lhe acLlvlLv and acLlons (l.e., expecLaLlons) of
Lhose belna held accounLable and (2) Lhe dearee Lo whlch Lhe accounLable aaenL ls alven some dearee
of dlscreLlon Lo acL (l.e., auLonomv) on Lhose expecLaLlons.
( (
7='4/@/4/26(#@(*44#&+2*5$'(*42/A/26((
B/C'CD('E='42*2/#+0F(
Low High
3&2#+#-6(#@(
*44#&+2*5$'(
*%'+2(
High
Constitutive Accountability
Creation of "accountable space¨ for
development and operation of
internalized norms and standards (i.e.
expectations)
Managerial Accountability
Set "what¨ agent is accountable for
(objective or standard), allow agent to
determine "how¨ to meet expectations
Low
Regulative Accountability
Creation/externalized oversight of
(expected) actions of agent within
"accountable space¨
Performative Accountability
Set "what¨ agent is accountable for and
"how¨ to proceed to meet those
expectations
Figure 4: Accountability regime's core component types

Cf Lhe four resulLlna core componenL Lvpes, Lhe -*.4%.,!#$/*(!""%0&#!1$2$#3 reforms are mosL closelv
assoclaLed wlLh Lhe accounLablllLv-as-mechanlsm perspecLlve. Pere Lhe assumpLlon ls LhaL areaLer
accounLablllLv requlres Lhe speclflcaLlon of cerLaln (expecLed) acLlons and behavlors whlch are Lo be
mandaLed and enforced, Lvplcallv bv a aovernlna auLhorlLv ouLslde Lhe oraanlzaLlon (+, llsse &
8ralLhwalLe 1993). 1hese reforms sLress Lhe conLrol funcLlons of accounLablllLv, and Lhev are noL
uncommon ln Lhe banklna lndusLrv. 1hev are so pervaslve, ln facL, LhaL manv vlew Lhem as Lhe verv
deflnlLlon of accounLablllLv. neverLheless, whaL dlfferenLlaLes Lhese accounL-alvlna performaLlves from
conLrols ls Lhe underlvlna lnLenL LhaL Lhe performance (conducLlna an audlL, publlshlna Lhe resulLs, eLc.)
wlll lead Lo responslble behavlor. Pere Lhere ls an lmplled llnk beLween requlred behavlor and Lhe sense
of responslblllLv whlch lL ls assume Lo aeneraLe or awaken ln Lhe LaraeL populaLlon. 1he sLrenaLh of Lhls
assumed llnk ls verv hlah, and Lherefore clearlv sLaLed and sLrlcLlv enforced reporLlna requlremenLs bv a
Dubnick, Fixing Financial Markets, 17 April 2010
16

varleLv of reaulaLorv and oLher overslahL aaencles reaarded as parL of Lhe necessarv lnfrasLrucLure for
ĐŽŶĚƵĐƚŝŶŐ ďƵƐŝŶĞƐƐ ŝŶ ŵĂŶLJ ŽĨ ƚŚĞ ǁŽƌůĚ͛Ɛ ũƵƌŝƐĚŝĐƚŝŽŶƐ (8all 2001).

8eforms based on Lhe loalc of ,!&!+*.$!2(!""%0&#!1$2$#3 dlffer from Lhe performaLlve ln allowlna
areaLer dlscreLlon Lo Lhe accounLable aaenL whlle aL Lhe same Llme holdlna lL accounLable Lo meeLlna a
speclfled ob[ecLlve or sLandard. 8eflecLlna Lhe arowlna culLural accepLance of manaaerlallsm,
13
lL ls
based on Lhe assumpLlon
16
ƚŚĂƚ ƚŚŽƐĞ ͞ƉƌŽĨĞƐƐŝŽŶĂůƐ͟ ǁŚŽ ŽƉĞƌĂƚĞ ƌĞŐƵůĂƚĞĚ ŽƌŐĂŶŝnjĂƚŝŽŶƐ ĂƌĞ ďLJ
deflnlLlon (afLer all, Lhev are professlonals) predlsposed Lo responslble behavlor once provlded wlLh
auldance reaardlna Lhe ends Lo be achleved. A law or reaulaLorv bodv mlahL requlre, for example, LhaL a
bank charLered Lo operaLe wlLhln a sLaLe or communlLv commlL aL leasL x percenLaae of lLs loan porLfollo
Lo local buslnesses or lndlvlduals. 1he sLandard for conducLlna buslness ls seL, buL how Lhev ao abouL do
so ls lefL Lo Lhe bank and lLs manaaemenL. 1hls form of accounLablllLv assumes LhaL Lhose professlonals
who manĂŐĞ ƚŚĞ ĨŝŶĂŶĐŝĂů ŝŶƐƚŝƚƵƚŝŽŶ ǁŝůů ĂĐƚ͕ ĂƐ 8ĞƌůĞ ĂƌŐƵĞĚ ŝŶ ϭϵϯϮ͕ ͞ŵŽƌĞ ĂƐ ƉƌŝŶĐĞƐ ĂŶĚ ŵŝŶŝƐƚĞƌƐ
ƚŚĂŶ ĂƐ ƉƌŽŵŽƚĞƌƐ Žƌ ŵĞƌĐŚĂŶƚƐ͘͟
17
(
Whlle Lhe mechanlsm perspecLlve characLerlzes boLh performaLlve and manaaerlal accounLablllLv
approaches, Lhe reaulaLlve and cŽŶƐƚŝƚƵƚŝǀĞ ĨŽƌŵƐ ƌĞůLJ ŵŽƌĞ ŽŶ ǁŚĂƚ ĐĂŶ ďĞ ƚĞƌŵĞĚ ĂŶ ͞ĂĐĐŽƵŶƚĂďůĞ
ƐƉĂĐĞ͟ ƉĞƌƐƉĞĐƚŝǀĞ͘ Pere accounLablllLv ls vlewed as a more aeneral conLexL or seLLlna -- whaL 8ourdleu
ƚĞƌŵƐ Ă ͞ĨŝĞůĚ͟ (8ourdleu 1989, 8oudleu & WacquanL 1992) -- wlLhln whlch relaLlonshlps occur raLher
Lhan as lLself a speclflc relaLlonshlp per se. 1hese accounLable spaces can be characLerlzed bv boLh Lhelr
sLrucLure and subsLance.

15 Berle and Means (1932) first described the logic of this approach in the corporate world when they presented their classic
exposition of the transformation of the modern corporation into a professionally managed organization. "A management may well
insist on as free a managerial hand as possible as to how it shall run its business,¨ they observed. "Nor has anyone grudged
managements this group of powers, not only in law but in ideology. No better principle in carrying on business has yet been worked
out than to find able men and give them the completest latitude possible in handling the enterprise¨ (p. 60). Also see Mason 1958;
Preston & Post 1974; Miller & O'Leary1989.
16 Although this assumption originated in the private sector, it has been most often critically examined with public sector contexts.
On the history of private sector managerialism, the classics are Burnham 1960 and Chandler 1977. The classic expression of a
positive view of public sector managerialism was found in Friedrich 1940. The recent New Public Management reforms that took
root in New Zealand, Australia, the UK and Canada had a strong managerial accountability component; see Pollitt 1993; Pollitt &
Bouckaert 2000; Cochrane 1993; Campbell; and Hood 2001).
17 Berle 1932, pp. 1366-1367. Ìn the same publication (p. 1377) he offers the following: "Most students of corporation finance dream
of a time when corporate administration will be held to a high degree of required responsibility -- a responsibility conceived not
merely in terms of stockholders' rights, but in terms of economic government satisfying the respective needs of investors, workers,
customers, and the aggregated community. Indications, indeed, are not wanting that without such readjustment the corporate
system will involve itself in successive cataclysms perhaps leading to its ultimate downfall.´
Dubnick, Fixing Financial Markets, 17 April 2010
17

SLrucLurallv, Lhev exlsL as arranaemenLs wlLhln parameLers seL bv a ranae of normaLlve consLralnLs ln Lhe
form of aeneral roles and rules LhaL shape Lhe expecLed relaLlonshlps LhaL Lake place wlLhln LhaL space
(+, lllasLeln 2001, Þreda 2009, and uavls 2009.). 5%&'#$#0#$/*(!""%0&#!1$2$#3 reforms
18
focus on Lhe
esLabllshmenL and ad[usLmenL of Lhose parameLers, effecLlvelv consLlLuLlna (or reconsLlLuLlna, as Lhe
case mav be) Lhe envlronmenL wlLhln whlch accounLable behavlor occurs. Aaaln, we flnd Lhese Lvpes of
ƌĞĨŽƌŵƐ ƚŽ ďĞ ĨĂŵŝůŝĂƌ ŝŶ ƚŚĞ ĨŝŶĂŶĐŝĂů ŵĂƌŬĞƚƐ͘ 1ŚĞ ƌŽůĞƐ ĂŶĚ ƌƵůĞƐ ƌĞƋƵŝƌĞĚ ďLJ ĂĐĐŽƵŶƚĂďŝůŝƚLJ ͞ƌĞŐŝŵĞƐ͟
ĨŽƌ ĨŝŶĂŶĐŝĂů ŝŶƐƚŝƚƵƚŝŽŶƐ ǀĂƌŝĞƐ ĚĞƉĞŶĚŝŶŐ ŽŶ ƚŚĞ ͞ĐŽŶƐƚŝƚƵƚŝŽŶĂů ƐĞƚƚŝŶŐ͟ ǁŝƚŚŝŶ ǁŚŝĐŚ ƚŚĞLJ ŽƉĞƌĂƚĞ͘
WlLh boLh dereaulaLlon and llberallzaLlon of banklna laws over Lhe pasL several decades, Lhe number of
such seLLlnas has mulLlplled. 1hls has creaLed oppŽƌƚƵŶŝƚŝĞƐ ĨŽƌ ďĂŶŬƐ ƚŽ ͞ƐŚŽƉ ĂƌŽƵŶĚ͟ ĨŽƌ ǁŚĂƚ ƚŚĞLJ
reaard as more sulLable accounLablllLv realmes boLh domesLlcallv and aloballv.
6*+02!#$/*(!""%0&#!1$2$#3 comes lnLo plav when Lhe subsLance of Lhose roles and rules requlre Lhe
acLlve monlLorlna and overslahL of an accounLable aaenL bv a reaulaLorv overseer. 1he loalc of Lhls form
of accounLablllLv ls drawn from Lhe reaulaLorv realme, buL Lhe deslan premlse ls dlfferenL. 1he
ĂƐƐƵŵƉƚŝŽŶ ŚĞƌĞ ŝƐ ƚŚĂƚ ƚŚĞ ƚĂƌŐĞƚ ƉŽƉƵůĂƚŝŽŶ ǁŝůů ďĞ ŵŽƌĞ ͞ƌĞƐƉŽŶƐŝďůĞ͟ ŝŶ ĞdžĞƌĐlslna dlscreLlonarv
behavlor (l.e., meeLlna normaLlve expecLaLlons) knowlna LhaL Lhere ls a reaulaLorv aaenL overseelna
ǁŚĂƚ ŝƐ ƚĂŬŝŶŐ ƉůĂĐĞ ŝŶ ƚŚĞ ĂĐĐŽƵŶƚĂďŝůŝƚLJ ƐƉĂĐĞ͘ ÞĂƌŬĞƌ ƵƐĞƐ ƚŚĞ ƚĞƌŵ ͞ƌĞƐƉŽŶƐŝǀĞ ƌĞŐƵůĂƚŝŽŶ͟ ƚŽ ĐĂƉƚƵƌĞ
ƚŚŝƐ ĂƉƉƌŽĂĐŚ͗ ͞SŝŵƉůĞ ĚĞƚĞƌƌĞŶĐĞ ǁŝůů ŽĨƚĞŶ ĨĂŝů ƚŽ ƉƌŽĚƵĐĞ ĐŽŵƉůŝĂŶĐĞ ĐŽŵŵŝƚŵĞŶƚ͕͟ ƐŚĞ ĂƌŐƵĞƐ͕
͞ďĞĐĂƵƐĞ ŝƚ ĚŽĞƐ ŶŽƚ ĚŝƌĞĐƚůLJ ĂĚĚƌĞƐƐ ďƵƐŝŶĞƐƐ ƉĞƌĐĞƉƚŝŽŶƐ ŽĨ ƚŚĞ ŵŽƌĂůŝƚLJ ŽĨ ƌĞŐƵůĂƚĞĚ ďĞŚĂǀŝŽƌ -- lL
merelv puLs a prlce on noncompllance, and Lhe ablllLv of LhaL prlce Lo deLer mlsconducL wlll depend on
Lhe operaLlon of Lhe deLerrence Lrap. 8esponslve reaulaLlon, bv conLrasL, seeks Lo bulld moral
commlLmenL Lo compllance wlLh Lhe law͟ (Þarker 2006, p. 392, also see Avres & 8ralLhwalLe 1992). lor
example, Lhe proposal Lo esLabllsh a consumer proLecLlon aaencv wlLh [urlsdlcLlon over credlL producLs
ŝƐ ŝŶ ƉĂƌƚ ĚĞƐŝŐŶĞĚ ƚŽ ĞŶĨŽƌĐĞ ͞ĐŽŶƚƌŽů͟ ƉƌŽǀŝƐŝŽŶƐ ŽĨ ƚŚĞ ůĂǁ͘ 8uL Lhe aaencv ls lnLended as well Lo
monlLor complalnLs abouL credlL provlders from consumers and even raLe card servlces, Lherebv alvlna
ƚŚĞ ĨŝŶĂŶĐŝĂů ŝŶƐƚŝƚƵƚŝŽŶƐ ƌĞĂƐŽŶ ĐŽŶƐŝĚĞƌ Ă ŵŽƌĞ ƌĞƐƉŽŶƐŝďůĞ ;͞ĐƵƐƚŽŵĞƌ ĨƌŝĞŶĚůLJͿ ĂƉƉƌŽĂĐŚ ƚŽ ĚŽŝŶŐ
buslness.
As Lhe core componenLs of accounLablllLv realmes, each of Lhese sLresses Lhe need Lo esLabllsh and
fosLer responslblllLv (l.e., expecLaLlons manaaemenL) over Lhe demand for conLrol. Lven Lhe form LhaL
comes Lhe closesL Lo a conLrol mechanlsm -- performaLlve accounLablllLv -- dlffers ln purpose (lf noL ln
conLenL) from Lhe behavlor modlflcaLlon mechanlsms represenLed ln Lhe P88 frame. Conslder, for
example, Lhe requlremenL ln SecLlon 302 of Lhe 2002 Sarbanes-Cxlev AcL
19
LhaL corporaLe CLCs and
ClCƐ ĂƚƚĂĐŚ ƚŚĞŝƌ ƐŝŐŶĂƚƵƌĞƐ ƚŽ ŵĂŶĚĂƚĞĚ ĂƵĚŝƚ ƌĞƉŽƌƚƐ ƚŚĂƚ ĞƐƐĞŶƚŝĂůůLJ ĐĞƌƚŝĨŝĞƐ ƚŚĞ ͞ĂƉƉƌŽƉƌŝĂƚĞŶĞƐƐ ŽĨ

18 Perhaps the most relevant and useful approaches for analyzing these types of reform is found in the work of Elinor Ostrom and
her colleagues whose research has focused on solutions to common pool resource problem. See Ostrom 1990, 2005; Dietz, Ostrom
& Stern 2003.
19 For an examination of the role of accountability in provisions of Sarbanes-Oxley, see Dubnick 2007.
Dubnick, Fixing Financial Markets, 17 April 2010
18

Lhe flnanclal sLaLemenLs and dlsclosures conLalned ln Lhe perlodlc reporL, and LhaL Lhose flnanclal
sLaLemenLs and dlsclosures falrlv presenL, ln all maLerlal respecLs, Lhe operaLlons and flnanclal condlLlon
ŽĨ ƚŚĞ ŝƐƐƵĞƌ͘͟ CŽŶƚƌĂƐƚ ƚŚĂƚ ƌĞƋƵŝƌĞŵĞŶƚ ǁŝƚŚ Ă ƉƌŽǀŝƐŝŽŶ ŝŶ SĞĐƚŝŽŶ ϰϬϭ ƚŚĂƚ ƐƉĞĐŝĨŝĞƐ ƚŚĞ ΗĂnnual and
quarLerlv flnanclal reporL . . . shall dlsclose all maLerlal off-balance sheeL LransacLlons" and "oLher
relaLlonshlps" wlLh enLlLles LhaL can maLerlallv have an lmpacL on Lhe flnanclal condlLlon of Lhe lssuer.
1he laLLer ls an expllclL lnsLrucLlon seeklna a behavloral chanae, whlle Lhe former ls aL besL an lndlrecL
aLLempL Lo fosLer a more responslble approach Lo Lhe wav corporaLe execuLlves do Lhelr [obs.
Cf course, LhaL Lvpe of dlsLlncLlon ls ofLen blurred bv Lhe facL LhaL Lhe Lwo realmes overlap ln Lhe overall
scheme of aovernance. 8ecenLlv lmposed provlslons Lo conLrol compensaLlon recelved bv execuLlves ln
ďĂŶŬƐ ƚŚĂƚ ƌĞĐĞŝǀĞĚ ͞ďĂŝůŽƵƚ͟ ĨƵŶĚŝŶŐ ĨƌŽŵ ƚŚĞ uS 1A8Þ ƉƌŽŐƌĂŵ ĐĂŶ ďĞ ƌĞŐĂƌĚĞĚ ĂƐ ĚƌŝǀĞŶ ďLJ ďŽƚŚ
reaulaLorv and accounLablllLv realme drlvers. 1he reaulaLorv aspecLs sLress a comblnaLlon of boLh
sLandard seLLlna and behavlor modlflcaLlon bv Lhe sub[ecL flrms, buL lmplled ln Lhe acLlon ls Lhe messaae
LhaL Lhose execuLlves who are assumed Lo have plaved a role ln Lhe pollcv-preclplLaLlna crlsls need Lo
learn Lhelr lesson and acL more responslblv ln Lhe fuLure.
20
WlLh Lhe core concepLual componenLs of Lhe accounLablllLv realme esLabllshed, and conLlnulna ln Lhe
aLLempL Lo emulaLe Lhe P88 approach, we now Lurn Lo Lhose facLors LhaL lead Lo varlaLlons ln
accounLablllLv realmes across and wlLhln pollcv domalns. As reflecLed ln llaure 3, Lhere are Lhree llkelv
sources LhaL deLermlne such varlaLlon: conLenL, conLexL, and condlLlons.
8eaardlna conLenL, as concepLuallzed here accounLablllLv realmes are prlmarllv abouL Lhe creaLlon,
allocaLlon and manaaemenL of expecLaLlons, Lhus maklna varlaLlons of expecLaLlons exLremelv
lmporLanL ln Lhe descrlpLlon, assessmenL and deslan (and reform) of domaln aovernance. Approachlna
expecLaLlons analvLlcallv ls no slmple Lask (e.a., uubnlck & 8omzek 1993) alven lLs someLlmes lmpllclL
naLure. lor example, whlle lL mlahL be posslble Lo arLlculaLe some leaal requlremenLs and aeneral
sLandards of behavlor LhaL we expecL from domaln acLors (e.a., LhaL Lhev perform Lhelr Lasks ǁŝƚŚ ͞ĚƵĞ
ĚŝůŝŐĞŶĐĞ͟Ϳ͕ ƚŚĞƌĞ ŝƐ ĂůƐŽ Ă ŵŽƌĞ ŐĞŶĞƌĂů͕ ŽĨƚĞŶ ƵŶĂƌƚŝĐƵůĂƚĞĚ ƐĞŶƐĞ ŽĨ ͞ƌĞƐƉŽŶƐŝďůĞ͟ ĂŶĚ ͞ĂƉƉƌŽƉƌŝĂƚĞ͟
behavlor LhaL plavs an lmporLanL role ln accounLablllLv realmes.
21
lor presenL purposes, Lhose more
amorphous sLandards can be shlfLed Lo Lhe ͞ĐŽŶƚĞdžƚ͟ ĨĂĐƚŽƌ ĐĂƚĞŐŽƌLJ͕ ůĞĂǀŝŶŐ ͞ĐŽŶƚĞŶƚ͟ ƚŽ ƌĞĨůĞĐƚ
expecLaLlons LhaL have an expllclL presence ln Lhe realme.

20 See Fisse & Braithwaite 1993. There is a sense of collective indignation and retribution also associated with those efforts.
21 The "logic of appropriateness¨ factor in choice is likely to play a significant role in the further development of this scheme; see
March & Olsen 1995; 2004.
Dubnick, Fixing Financial Markets, 17 April 2010
19

(
( G6='0(#@(*44#&+2*5/$/26(
(
!'"@#"-*2/A'((>*+*%'"/*$( )'%&$*2/A'( <#+02/2&2/A'((
Content
e.g., actions that assert,
clarify or remind actors of
what is normatively
expected or appropriate
Meaningful
narratives; required
symbolic gestures;
mandated rituals, e.g.
quarterly reports
Mission, goals,
direction; e.g.,
granting of limited
discretionary
authority
Rules, standards,
oversight,
sanctions; e.g.,
fiduciary
responsibility
Institutional
parameters, norms;
e.g., assumed due
diligence
Context
e.g., setting or medium
for carrying out expected
actions
Publicity, media Organizational Laws, oversight
Markets, assumed
integrity of actors
Conditions
e.g.,circumstances,
triggering situation or
event
e.g., scandal, poor
reputation,
misfeasance,
malfeasance
(Sarbanes-Oxley
provisions)
e.g., low or poor
performance,
productivity,etc.
Ineffectiveness
e.g., misfeasance,
malfeasance;
noncompliance
(SEC suit against
Goldman Sachs)
e.g., market failure,
government failure
(threat of major
market reform; threats
from political
movements)
Figure 5: Framing the Accountability Regime
(
Pavlna puL aslde Lhe unarLlculaLed expecLaLlons, aeLLlna a useful analvLlc handle on Lhe expecLaLlons
conLenL of accounLablllLv realmes ls sLlll qulLe challenalna. LxpecLaLlons can varv from verv speclflc
requlremenLs, ofLen lald ouL ln laws and reaulaLlons, Lo Lhose such as due dlllaence and flduclarv LhaL
lnvolved verv aeneral sLandards (wlLh real consequences for acLlons) applled from case Lo case. 8evond
Lhelr speclflclLv, oLher dlmenslons of expecLaLlons LhaL come lnLo conslderaLlon lnclude (ln no parLlcular
order):
Lhe scope of Lhelr coveraae: for example, does Lhe expecLaLlon for Lransparencv applv Lo all
behavlor wlLhln Lhe domaln, or are Lhelr some are (e.a., proprleLarv lnformaLlon) LhaL ls
exempLed?
Dubnick, Fixing Financial Markets, 17 April 2010
20

Lhe distribution of expecLaLlons wlLhln Lhe domaln: does lL applv Lo Lhe enLlre populaLlon of
ƚĂƌŐĞƚĞĚ ĂĐƚŽƌƐ ŝŶ Ă ĚŽŵĂŝŶ ;Ğ͘Ő͕͘ Ăůů ĐŽŵŵĞƌĐŝĂů ďĂŶŬƐͿ Žƌ ŽŶůLJ ƚŽ ƚŚŽƐĞ ƚŚĂƚ ĂƌĞ ͞ƚŽŽ ďŝŐ ƚŽ
ĨĂŝů͍͟
Lhe salience of a alven expecLaLlon or seL of expecLaLlons wlLhln Lhe domaln: [usL how lmporLanL
ls Lhe sLandard amona Lhe ranae of expecLaLlons applled ln Lhe domaln?
Lhe stabilitv of Lhe expecLaLlon over Llme: ls Lhe sLandard expressed ln an expecLaLlon aolna Lo
endure overLlme, or does lL shlfL from clrcumsLance Lo clrcumsLance -- and, lf so, ls Lhelr a
paLLern Lo LhaL ͞ƐŚŝĨƚŝŶŐ͍͟
Lhe source(s) of Lhe expecLaLlon or sLandard: does lL emerae from wlLhln Lhe domaln or ls lL
lmposed from ouLslde, eLc?
Lhe purpose or lnLended funcLlon of Lhe expecLaLlon: ls lL reaarded as a means for promoLlna
lnLearlLv and LrusL amona domaln acLors, or ls lL focused on enhanclna Lhe efflclencv or falrness
of domaln acLor acLlons?
Whlle noL exhausLlve, Lhls llsL of conLenL facLors lndlcaLes how compllcaLed accounLablllLv realmes can
be -- and how challenalna Lhe deslan Lask ls llkelv Lo be as well. 1he slLuaLlon ls furLher compllcaLed bv
Lhe facL LhaL conLexL maLLers as much as conLenL when lL comes Lo accounLablllLv. lor presenL purposes,
we wlll dlfferenLlaLe beLween Lhe more aeneral (l.e., backaround) conLexL from Lhe lmmedlaLe
clrcumsLanceƐ ŚĂǀŝŶŐ ĂŶ ŝŵƉĂĐƚ ŽŶ ƚŚĞ ŽƉĞƌĂƚŝŽŶƐ ŽĨ ƚŚĞ ƌĞŐŝŵĞ ;ƐĞĞ ĚŝƐĐƵƐƐŝŽŶ ŽĨ ͞ĐŽŶĚŝƚŝŽŶƐ͟ ƚŚĂƚ
follows).
1here are a number of relevanL analvLlc approaches Lo Lhe aeneral conLexL of accounLablllLv realmes
LhaL can be applled for Lhls framlna pro[ecL. 1ŚĞ ͞ŐƌŽƵƉ-aƌŝĚ ŵĂƚƌŝdž͟ ƚLJƉŽůŽŐLJ ĚĞǀĞůŽƉĞĚ ŝŶŝƚŝĂůůLJ ďLJ
Marv uoualas and Aaron Wlldavskv
22
hlahllahLs Lhe varlaLlon ln expecLaLlons LhaL emerae from flve
culLural orlenLaLlons LhaL emerae from dlfferences alona Lwo dlmenslons: Lhe exLenL Lo whlch one
percelves Lhe world from a vanLaae polnL LhaL sLresses collecLlve (hlah aroup) or lndlvldual (low aroup)
approach Lo problems, and Lhe exLenL Lo whlch one reaards oneself as consLralned (hlah arld) or allowed
dlscreLlon Lo acL (low arld) bv Lhe demands of socleLv. 1he four ma[or Lvpes of acLors LhaL emerae from
Lhls framework relaLe Lo expecLaLlons dlfferenLlv, ranalna from Lhe eaallLarlan whose expecLaLlons are
shaped bv a sLrona ldenLlLv wlLh aroup values and a hlah sense of efflcacv Lo Lhe faLallsL whose
expecLaLlons are nelLher coherenLlv oraanlzed nor acLlvelv pursued. 8eLween Lhe Lwo exLremes are Lhe
culLures of Lhe markeL (lndlvlduallsL) and Lhe oraanlzaLlon (hlerarchlsL).

22 See Douglas & Wildavsky 1982; Wildavsky 1987, 1988, 1989; Douglas 1992, 1999; Thomspon, Ellis & Wildavsky 1990; Ellis &
Thompson 1997. Also see Hood 1998. For an overview, see Mamadouh 1999.
Dubnick, Fixing Financial Markets, 17 April 2010
21

AůƚĞƌŶĂƚŝǀĞůLJ͕ ÞŝĞƌƌĞ 8ŽƵĚŝĞƵ͛Ɛ ǀŝĞǁ ŽĨ ƐŽĐŝĂů ĐŽŶƚĞdžƚƐ ĂƐ ͞ĨŝĞůĚƐ͟ ŽĨ ŽĨƚĞŶ ĐŽŵƉĞƚŝŶŐ ͞ĨŽƌĐĞƐ͟ Đan
provlde slanlflcanL lnslahLs lnLo Lhe facLors LhaL shape expecLaLlons and shape/drlve Lhe accounLablllLv
realme. ln hls examlnaLlon of economlc markeLs, for example, he aLLrlbuLes Lhe declslons of varlous
ĂĐƚŽƌƐ ƚŽ ƚŚĞŝƌ ͞ƉŽƐŝƚŝŽŶƐ͟ ǁŝƚŚŝŶ ƚŚĞ ĨŝĞůĚƐ ĂƐ ǁĞůů ĂƐ ƚŚĞŝƌ ͞ĚŝƐƉŽƐŝƚŝŽŶƐ͟ ;ǁŚŝĐŚ ŚĞ ŽĨƚĞŶ ƚĞƌŵƐ ͞ƚĂƐƚĞƐ͕͟
buL whlch can be LreaLed as expecLaLlons) relaLed Lo Lhe cholces and opLlons before Lhem (8ourdleu
1977, 1983, 1898, 1990, 2003).

Whlch of Lhese (or oLher)
23
models of conLexL varlaLlons can prove mosL useful wlLhln Lhls realme
framework awalLs furLher exploraLlon. ln llaure 3 some relevanL conLexLs for flnanclal markeLs are
offered for each of Lhe accounLablllLv realme Lvpe, and aL Lhls polnL Lhese are merelv analvLlcallv
speculaLlve. WhaL needs Lo be emphaslzed ls LhaL anv framework for deslanlna flnanclal markeL reforms
musL Lake lnLo accounL Lhe varlablllLv of accounLablllLv realmes across dlfferenL conLexLs and culLures
broadlv deflned.
1ŚĞ ƐĂŵĞ ŚŽůĚƐ ƚƌƵĞ ĨŽƌ ͞ĐŽŶĚŝƚŝŽŶĂů͟ ĨĂĐƚŽƌƐ -- Lhe more lmmedlaLe pollLlcal, economlc and soclal
clrcumsLances -- ln whlch reforms would be lmplemenLed. 1he P88 framlna of reaulaLorv realme
conLexL ls relevanL here. AŵŽŶŐ ƚŚĞ ĨĂĐƚŽƌƐ ƚŚĞLJ ŚŝŐŚůŝŐŚƚ ĂƌĞ ƚŚƌĞĞ ŵĂũŽƌ ƐŽƵƌĐĞƐ ŽĨ ͞ƉƌĞƐƐƵƌĞ͟ Ăƚ ǁŽƌŬ
wlLhln rlsk reaulaLlon realmes: markeL-fallure pressures LhaL aeneraLe demands for preempLlve or
correcLlve pollcles, oplnlon-response pressures emanaLlna from Lhe aeneral publlc, and lnLeresL-drlven
pressures LhaL reflecL sLakeholder demands (P88, pp. 61-67). ln addlLlon, Lhe currenL forms and sLvles of
pollcvmaklna sLvles ln dlfferenL counLrles are an essenLlal seL of facLors LhaL requlre aLLenLlon (LöfsLedL
eL al 2001)͘ MĂŶLJ ŽĨ ƚŚĞ ͞ĐŽŶĚŝƚŝŽŶĂůƐ͟ ƌĞĨůĞĐƚ ŶŽƚĞĚ ĂƐ ĞdžĂŵƉůĞƐ ŝŶ lŝŐƵƌĞ ϱ ĂƌĞ ĚƌĂǁŶ ĨƌŽŵ ƚŚĞ ďůĂŵĞ
aame rheLorlc of Lhe currenL flnanclal crlsls, and ln essence can be caLeaorlzed and analvLlcallv
approached uslna Lhe P88 framlna.

Cf course, whaL ls provlded here ls merelv a prellmlnarv framlna of Lhe LhaL requlres furLher elaboraLlon
and appllcaLlon Lo currenL accounLablllLv realmes. Cnlv Lhrouah enhanclna our capaclLv Lo descrlbe Lhe
elemenLs of accounLablllLv realme can Lhe deslan of effecLlve reforms proaress Lo Lhe nexL sLaae.
H#"I/+%(#+(;'0/%+(!"/+4/=$'0
1ŚĂƚ ͞ŶĞdžƚ ƐƚĂŐĞ͟ ŝƐ Ă ĐƌŝƚŝĐĂů ŽŶĞ͕ ĨŽƌ ŚĂǀŝŶŐ ĞƐƚĂďůŝshed Lhe concepLual foundaLlons for undersLandlna
Lhe deslan of aovernance and lLs assoclaLed realmes, we wlll face Lhe Lask of arLlculaLlna deslan
prlnclples LhaL can aulde Lhe pollcv reform efforL. Some of Lhose prlnclples are alreadv lmplled ln Lhe
aovernance approach and realme frameworks Lhemselves, buL oLhers requlre furLher arLlculaLlon and
LesLlna before Lhev can prove useful.


23 E.g., Hofstede 1983, 1993, 1998; Wiener 1988; Dubnick 1996.
Dubnick, Fixing Financial Markets, 17 April 2010
22

1ŚĞ ǀĞƌLJ ŝĚĞĂ ŽĨ ͞ĚĞƐŝŐŶ͟ ƵƐĞĚ ŚĞƌĞ ŝƐ ďŽƚŚ ĂŶĂůŽŐŝĐĂů ĂŶĚ ŵĞƚĂƉŚŽƌŝĐĂů͘ AŶĂůŽŐŝĐĂůůLJ͕ ǁĞ ĂƌĞ ĞŶŐĂŐĞĚ ŝŶ
a process noL unllke LhaL underLaken bv deslaners ln a number of flelds -- from Lhe arLlsL and
crafLsperson Lo Lhe archlLecL and enalneer. lor Lhem, as for us, Lhe Lask ls Lo develop a plan for puLLlna
Lhe maLerlal and nonmaLerlal elemenLs aL our dlsposal Lo work Lo achleve ƐŽŵĞ ƉƌĞĐŽŶĐĞŝǀĞĚ ͞ŶŽƚŝŽŶ͟
ln Lhe form of a sculpLure, producL, house or brldae. Cur noLlons Lake Lhe form of publlc pollcles.
͞ÞŽůŝĐŝĞƐ ĂƌĞ ƚŚĞ ĨŝƌƐƚ ĞdžƉƌĞƐƐŝŽŶƐ ĂŶĚ ŐƵŝĚŝŶŐ ŝŵĂŐĞƐ ŽĨ ŶŽƌŵĂƚŝǀĞ ƚŚŝŶŬŝŶŐ ĂŶĚ ĂĐƚŝŽŶ͕͟ ŶŽƚĞĚ LƌŝĐ
!anLsch. ͞lŶ ŽƚŚĞƌ ǁŽƌĚƐ͕ Lhev are Lhe splrlLual aaenLs of chanae -- chanae noL onlv ln Lhe wavs and
means bv whlch bureaucracles and Lechnocracles operaLe, buL chanae ln Lhe verv lnsLlLuLlons and norms
whlch form Lhelr homes and casLles͟ (!anLsch 1970, p. 32). ln LhaL sense, deslan ls an approprlaLe
meLaphor for Lhe creaLlve acL -- ƚŚĞ ĚĞǀĞůŽƉŵĞŶƚ ŽĨ ͞ƐƉŝƌŝƚƵĂů ĂŐĞŶƚƐ ŽĨ ĐŚĂŶŐĞ͟ -- LhaL Lhe process
ŝŶǀŽůǀĞƐ͘ 1ŚŝƐ ŝƐ ĐĂƉƚƵƌĞĚ ďLJ ƚŚĞ ǀĞƌLJ ĐŽŶĐĞƉƚ ŽĨ ƉŽůŝĐLJ ĂŶĂůLJƐŝƐ ĂƐ Ă ͞ĚĞƐŝŐŶ ƐĐŝĞnce͟ (Lasswell 1970, also
uror 1971) whlch seems oxvmoronlc aL flrsL. WhaL brldaes Lhe arL and sclence are Lhose prlnclples LhaL
aulde Lhe deslan pro[ecL.
lor presenL purposes, deslan prlnclples are of Lhree Lvpes: loalcal, concepLual and sLraLealc. ln Lhls
paper, Lhe prlnclples relaLed Lo Lhe loalc of pollcv reform are reflecLed ln Lhe aovernance perspecLlve
offered earller. 8eform of a pollcv domaln such as Lhe flnanclal markeLs can be approached Lhrouah a
varleLv of loalcs, each reflecLlna a aeneral LheoreLlcal perspecLlve LhaL mlahL be reaarded as llLLle more
Lhan a parLlcular (albelL more sLrucLured and formallzed) vlew of some parLlclpanLs ln Lhe blame aame
(+, LlahL 1997). lrom economlsLs we have a pleLhora of such loalcs [e.a., drawn from baslc markeL fallure
(8aLor 1938, uavls & PuleLL 1977)
24
and raLlonal expecLaLlon Lheorles (MuLh 1961, CorseLLl, ÞsenLl &
8oublnl 1999), ƚŽ ƚŚŽƐĞ ƐƚƌĞƐƐŝŶŐ ŵŽƌĞ ƉŽƉƵůĂƌ ŝŶƐŝŐŚƚƐ ƌĞŐĂƌĚŝŶŐ ͞ĂŶŝŵĂů ƐƉŝƌŝƚƐ͟ (Akerloff & Shlller
2009) and lrraLlonal exuberance (Shlller 2003)]. lrom Lhe world of pollLlcal sclence emeraes Lhe loalc of
ǀĂƌŝŽƵƐ ͞ƌĞŐƵůĂƚŽƌLJ ĐĂƉƚƵƌĞ͟ (see MlLnlck 1980) ĂŶĚ ŽƚŚĞƌ ͞ŐŽǀĞƌŶŵĞŶƚ ĨĂŝůƵƌĞ͟ ƚŚĞŽƌŝĞƐ (1ullock,
Seldon & 8radv 2002). 1he perspecLlve offered here focuses on Lhe noLlons of aovernance (mosLlv
drawn from Lhe sLudv of publlc manaaemenL reform) and realmes (from Lhe sLudv of lnLernaLlonal
oraanlzaLlons), buL also relles on Lhe work of economlc socloloalsLs and crlLlcal LheorlsLs who emphaslze
Lhe lmporLance of aovernmenLallLv (from Lhe work of Mlchel loucaulL)(8urchell, Cordon & Mlller 1991,
8evlr 1999, Sendlna & neumann 2006) and embeddedness.
23
AlLhouah Lhe loalc of aovernance reform was aenerallv Louched upon here, much of Lhls paper has been
ĞdžƉůŝĐŝƚůLJ ĚĞǀŽƚĞĚ ƚŽ ĚĞĂůŝŶŐ ǁŝƚŚ ƚŚĞ ĐŽŶĐĞƉƚƵĂů ͞ƉƌŝŶĐŝƉůĞƐ͟ ƚŚĂƚ ĞŵĞƌŐĞĚ ĨƌŽŵ ƚŚĞ ĨƌĂŵŝŶŐ ŽĨ ƚŚĞ
realmes. 8v poslLlna an alLernaLlve concepLuallzaLlon of accounLablllLv as a realme, l am (bv lmpllcaLlon)

24; However, see Zerbe & McCurdy 1999, 2000.
25 The concept was initially articulated by Karl Polanyi 1944, but today is most often associated with the work of Granovetter 1985,
1992; also see Knippner 2004.
Dubnick, Fixing Financial Markets, 17 April 2010
23

offerlna a normaLlve reorderlna of whaL consLlLuLes Lhe operaLlons of aovernance of (and Lhrouah)
responslble acLlon wlLhln Lhe pollcv domaln.
uesplLe seemlna more llke flrm dlrecLlves, Lhe sLraLealc aspecL of pollcv deslan prlnclples are perhaps
besL reaarded as worklna hvpoLheses -- ldeallv ln Lhe form of LesLable assumpLlons -- LhaL aLLempL Lo
applv Lhe loalc and concepLual elemenLs of Lhe reform efforL Lo Lhe problemaLlc domaln.
ueslan prlnclples appllcable Lo excluslvelv Lo Lhe reaulaLorv realme have been presenLed ln a varleLv of
forms dependlna on Lhe aoal of Lhe presenLer. lor some lL ls a maLLer of deslanlna pollcles LhaL are more
llkelv Lo pass musLer wlLh pollcvmakers. 1he auldance Lhev offer ls addressed Lo Lhe rule-deslanlna sLaff
of reaulaLorv aaencles and are Lvplcallv more orlenLed Lo meeLlna pollLlcal requlremenLs Lhan Lo
developlna effecLlve soluLlons Lo aovernance problems. lor Lhem Lhe deslan prlnclples lnclude
ͻ clarlLv and preclslon of lealslaLlon,
ͻ adherence Lo Lhe aeneral ob[ecLs and splrlL of Lhe empowerlna
lealslaLlon,
ͻ noL undulv Lrespasslna on personal rlahLs and llberLles,
ͻ noL reverslna Lhe onus of proof ln crlmlnal proceedlnas, and
ͻ ensurlna proLecLlon from self-lncrlmlnaLlon (Coahlan 2003, p. 16).
Þollcv analvsLs who Lake a less pollLlcallv senslLlve approach Lo reaulaLorv deslan Lvplcallv work wlLhln
some varlaLlon of Lhe followlna prlnclples:
ͻ seLLlna down dlfferenL Lvpes of ' reaulaLlon',
ͻ conslderlna lf, and when, aovernmenLs should reaulaLe,
ͻ decldlna whaL forms of aovernmenL acLlon mlahL besL be adopLed, and
ͻ examlnlna feaLures LhaL characLerlse poor or lneffecLlve reaulaLlon (Coahlan 2003, p. 16).
More common amona economlsLs who approach Lhe deslan problem as pollcv analvsls buL wlLh a focus
on whaL wlll work for Lhe reaulaLed (as opposed Lo Lhe pollLlcos) are prlnclples slmllar Lo Lhe followlna
ŽĨĨĞƌĞĚ ďLJ SĂƉƉŝŶŐƚŽŶ ĨŽƌ ĚĞƐŝŐŶŝŶŐ ͞ŝŶĐĞŶƚŝǀĞ͟-based reaulaLlons:
1. use lncenLlve reaulaLlon Lo beLLer emplov Lhe flrm's superlor lnformaLlon.
2. ÞrlorlLlze reaulaLorv aoals and deslan lncenLlve reaulaLlon Lo achleve sLaLed aoals.
3. Llnk Lhe flrm's compensaLlon Lo senslLlve measures of lLs unobserved acLlvlLles.
4. Avold baslna Lhe flrm's compensaLlon on performance measures wlLh excesslve varlablllLv.
Dubnick, Fixing Financial Markets, 17 April 2010
24

3. LlmlL Lhe flrm's flnanclal responslblllLv for facLors bevond lLs conLrol.
6. AdopL broad-based performance measures where posslble, unless Lhelr varlablllLv ls
excesslve.
7. Choose exoaenous performance benchmarks.
8. Allow Lhe flrn Lo choose amona reaulaLorv opLlons, whlle recoanlzlna
Lhe lnLerdependencles amona Lhe reaulaLorv opLlons LhaL are offered Lo Lhe flrm.
9. Þromlse onlv whaL can be dellvered, and dellver whaLever ls promlsed.
10. Þlan for Lhe rare, unforeseen evenL, buL mlnlmlze afLer-Lhe-facL ad[usLmenLs Lo Lhe
announced reaulaLorv pollcv (SapplnaLon 1994, p. 269).
Þroffered as advlce Lo pollcvmakers, Lhese deslan prlnclples are sLaLed ln slmple Lerms buL underlvlna
Lhem are dlfflculL challenaes reflecLlna Lhe complex comblnaLlon of loalcs, concepLs and sLraLealc norms.
Some of Lhese prlnclples can be LranslaLed and Lransposed Lo Lhe Lask of formulaLlna pollcv opLlons Lo
chanae Lhe accounLablllLv realme, buL noL wlLhouL some concepLual and LheoreLlcal cosLs. Care musL be
Laken ln developlna deslan prlnclples relevanL Lo Lhe reform of accounLablllLv.
Whlle Lhls pro[ecL ls noL aL Lhe sLaae where deslan prlnclples can bv plLhllv summarlzed ln shorL bulleL
polnL sLaLemenLs or senLences, some baslc polnLs have emeraed LhaL are lndlcaLlve of Lhe klnds of
prlnclples whlch are llkelv Lo emerae. Pere are offered Lhree examples:

-.&/0%"*12*3",(!/4*(,*#%(5&%*,67&7+6&%*/&!8"'4*/$4'*&99!"44*0!(5%"/4*(,*#(:"!7&7+"*;6'<67*&79*&+!(44*
!"%":&7'*0(%6+)*9(/&674=**
1hls prlnclple can easllv be Lransformed lnLo a quesLlon: does Lhe proposed pollcv address aovernance
problems assoclaLed wlLh Lhe challenaes of conLrol and responslblllLv? 1he lmporLance and necesslLv of
Lhls prlnclple becomes obvlous aL a number of polnLs. lL ls noL uncommon for Lhose enaaaed ln Lhe
pollcv deslan process Lo flnd Lhemselves enLhralled wlLh a parLlcular pollcv approach or lnsLrumenL, Lo
Lhe polnL LhaL he or she mlahL lose slahL of Lhe pollcv ob[ecLlve. lL ls also wlLhln Lhe naLure of Lhe pollcv-
maklna and pollcv lealLlmaLlon processes LhaL compromlses lnLended Lo auaranLee passaae can
effecLlvelv dlverL or replace kev elemenLs of Lhe reform proposal. A demand for areaLer dlscreLlon bv
Lhe LaraeL populaLlon mlahL be necessarv for aeLLlna Lhe pollcv adopLed, buL Lhe pollcv should be
deslaned Lo prevenL LhaL provlslon from emasculaLlna Lhe reform efforL. CrlLlcs of boLh Lhe recenL bank
ballouLs and Lhe economlc sLlmulus packaaes have noLed Lhe confllcLs and flaws LhaL emeraed overLlme
wlLh boLh pollcles, buL LhaL ls Lo be expecLed of such emeraencv measures. 8uL ln a hlahlv fraamenLed
pollcv-maklna svsLem such as Lhe uS where parLlsan dlvldes remaln sLrona, adherlna Lo Lhls deslan
prlnclple ls llkelv Lo prove dlfflculL aL besL.
Dubnick, Fixing Financial Markets, 17 April 2010
23


-.&/0%"*>2*?(:"!7&7+"*67:(%:"4*';(*67'"!!"%&'"9*,$7+'6(742*"4'&5%64<67#*+(7'!(%*&79*,&+6%6'&'67#*
!"40(7465%"*&+'6(7*;6'<67*'<"*0(%6+)*9(/&67=*@<"*",,(!'4*/&9"*'(*,$%,6%%*5('<*,$7+'6(74*&!"*/&76,"4'*67*
#(:"!7&7+"*!"#6/"4=*@<"*(0"!&'6(74*(,*'<"*';(*!"#6/"4*4<($%9*5"*!"#&!9"9*&4*+(/0%"/"7'&!)=**
1ŚŝƐ ƉƌŝŶĐŝƉůĞ ĐŽŵďŝŶĞƐ ůŽŐŝĐĂů͕ ĐŽŶĐĞƉƚƵĂů ĂŶĚ ƐƚƌĂƚĞŐŝĐ ŐƵŝĚĂŶĐĞ͘ 1ŚĞ ͞ďŽƚƚŽŵ ůŝŶĞ͟ ŝƐ ŚŝŐŚůŝŐŚƚ ƚŚĞ
complemenLarlLv of Lhe Lwo realmes. 1hls polnL emeraes from Lhe lessons of more mvoplc aovernance
reforms ln flnanclal markeLs over Lhe pasL Lhree decades whlch can be, ln Lurn, relaLed Lo Lhe currenL
crlsls. lrom Lhe earlv 1980s, banklna reforms ln Lhe uS and abroad have been characLerlsed as
͞ĚĞƌĞŐƵůĂƚŽƌLJ͟ ǁŚĞŶ ƐĞĞŶ ĨƌŽŵ ƚŚĞ ŶĂƌƌŽǁ ƉĞƌƐƉĞĐƚŝǀĞ ŽĨ ƚŚĞ ƌĞŐƵůaLlon realme slde of aovernance.
1ŚĞ ƚĞƌŵ ͞ĚĞƌĞŐƵůĂƚŝŽŶ͟ ŝƐ͕ ŝŶ ĨĂĐƚ͕ Ă ŵŝƐŶŽŵĞƌ͕
26
for whaL occurred was a reform of Lhe aovernance
arranaemenLs under whlch banks operaLed. WhaL Look place has been more approprlaLelv Lermed a
͞ůŝďĞƌĂůŝƐĂƚŝŽŶ͟ ĂŶĚͬŽƌ ŚĂƌŵŽŶlsaLlon of Lhe reaulaLorv realme LhaL aoverned Lhe flnanclal secLor.
27
1he
resulLs were a slow buL Lhorouah loosenlna of Lhe conLrol feaLures of domesLlc, LranslaLlon and
lnLernaLlonal reaulaLorv realmes.

under Lhe aovernance perspecLlve offered here, one can araue LhaL Lhe lack of complemenLarv
ad[usLmenLs ln relevanL accounLablllLv realmes has proven cenLral Lo creaLlna Lhe currenL represslon.
Cood aovernance does noL necessarllv requlre an opLlmal balance beLween conLrol and responslblllLv,
buL Loo areaL a aap beLween Lhe Lwo realmes creaLed bv lll advlsed reforms can cerLalnlv aeneraLe
svsLemLlc dvsfuncLlons slmllar Lo Lhose we now endure.

-.&/0%"*A2*@<"*:&%$"4*#$6967#*'<"*';(*!"#6/"4*+&7*96,,"!=*B<6%"*!"#$%&'(!)*+(7'!(%*<&4*0!6/&!6%)*
674'!$/"7'&%*:&%$"C*'<"*,&+6%6'&'6(7*(,*!"40(74656%6')*,(4'"!"9*5)*'<"*&++($7'&56%6')*!"#6/"*+&7*<&:"*5('<*
674'!$/"7'&%*&79*67'!6746+*:&%$"=**
1here are cases where Lhe exerclse of conLrol over Lhe flnanclal secLor has been underLaken for
purposes oLher Lhan Lhe need for more effecLlve aovernance of LhaL domaln, buL rarelv ls reaulaLorv
conLrol assumed Lo hold some lnLrlnslc value. LxproprlaLlon of banks for Lhe purpose of fulfllllna an
ldeoloalcal or naLlonallsLlc proaram (1roLskv 1938, Lewls 1983)

noLwlLhsLandlna, reaulaLorv realme
acLlons should be descrlbed and assessed accordlna Lo Lhelr lnsLrumenLal value.

26 Similarly, the term "re-regulation¨ would not suffice since it implies a deregulation effort preceding it.
27 Majone 2009; Underhill 1991; Claessens, Underhill & Zhang 2008; Underhill & Zhang 2008; Simmons 2001; Pan 2003; Abiad &
Mody 2005; Giannetti 2007.
Dubnick, Fixing Financial Markets, 17 April 2010
26


ln conLrasL, whlle accounLablllLv realmes serve lnsLrumenLal purposes, Lhelr role ln aovernance mav be
or lnLrlnslc value. 1hus, a pollcv LhaL seemlnalv has no subsLanLlal lnsLrumenLal value aL all such as Lhe
requlred resLrlcLlons on execuLlve pav, does plav a role ln enhanclna Lhe publlc percepLlon of a more
accounLable banklna secLor, and Lherefore lndlrecLlv achleve an ob[ecLlve of aovernance reform: e.a.,
lncreaslna confldence ln Lhe banklna secLor. Cr conslder Lhe value of pollcles lnsurlna bank deposlLs
whlch, on Lhe one hand, plav an lnsLrumenLal role ln Lhe reaulaLorv realme as a means for assurlna bank
solvencv, whlle on Lhe oLher hand belna value for enhanclna accounLablllLv and an accompanvlna sense
of bank securlLv and lnLearlLv. Whlle crlLlcs of Lhe pollcv noLe moral hazards creaLed bv Lhe lnsurance
(and Lhus quesLlon lLs lnsLrumenLal value, see Wheelock & kumbhakar 1993, also C'urlscoll 1988), Lhelr
concerns are deLermlned Lo be more Lhan offseL bv Lhe beneflLs aeneraLed bv Lhe assumed
enhancemenL of lnLearlLv fosLered bv responslble behavlour of Lhe lnsured bank.
<#+4$&,/+%(4#--'+20(
1he Lask LhaL lnlLlaLed Lhls pro[ecL was Lo address Lhe currenL flnanclal crlsls as a pollcv deslan problem,
ĂŶĚ ƚŚĞ ŝŶƚĞŶƚ ǁĂƐ ƚŽ ĚĞǀĞůŽƉ ƐŽŵĞ ƌĞĂƐŽŶĞĚ ĂŶĚ ƌĞĂƐŽŶĂďůĞ ƉĂƚŚƐ ƚŽ ƌĞĨŽƌŵ͘ ͞WŚĂƚ ŝƐ ƚŽ ďĞ ĚŽŶĞ͊͟ ŝƐ
Lhe quesLlon of Lhe hour, and mosL responses have unforLunaLelv relled on Lhe usual baa of pollcv Lrlcks
LhaL manv reaard as merelv spoL repalrs LhaL wlll keep Lhe svsLem aolna for lona enouah Lo aeL Lo Lhe
ŶĞdžƚ ĐƌŝƐŝƐ͘ lƚ ŝƐ͕ ĂƐ ŶŽƚĞĚ ĞĂƌůŝĞƌ͕ Ă ŐŽŽĚ ĞdžĂŵƉůĞ ŽĨ ƚŚĞ ͞ŐĂƌďĂŐĞ ĐĂŶ ŵŽĚĞů͟ Ăƚ ǁŽƌŬ͗ ƐƚƌĞĂŵƐ ŽĨ
problems, pollcv soluLlons and pollLlcal demands converae aL some polnL and some form of pollcv
emeraes from Lhe mlx. AL Llmes we aeL luckv and Lhe process works -- produclna pollcles LhaL saLlsfv our
needs for aL leasL a shorL Lerm resoluLlon. lf we are reallv forLunaLe, LhaL soluLlon sLlcks for an exLended
perlod.
1haL seems Lo be Lhe slLuaLlon we face aL Lhe momenL concernlna reform of Lhe flnanclal servlces
markeL. AL presenL, pollcvmakers are relvlna on Lhe advlce alven bv analvsLs who speclallse ln pollcv
repalrs and qulck flxes raLher Lhan pollcv deslan. 1he reasons are manv, buL Lhev cerLalnlv lnclude
slanlflcanL Llme pressures as well as Lhe dvnamlcs of Lhe blame aame whlch offers up all sorLs of LaraeLs
for so-called reform pollcles.
1o enaaae ln a more subsLanLlal pollcv deslan efforL under crlsls condlLlons mlahL be reaarded as a wasLe
of Llme and enerav. SlanlflcanL pollcv deslan requlres a crlLlcal reLhlnklna of how we approach Lhe
collapse of Lhe flnanclal markeLs and Lhe subsequenL damaae lL caused Lo economlc sLablllLv and Lhe
posslblllLv of economlc arowLh. AL Lhe earllesL sLaaes of Lhe deslan efforL, descrlpLlon and Lheorlslna
abouL Lhe problem Lake prlorlLv over when Lhe prlmarv aoal ls Lo esLabllsh an undersLandlna of Lhe
domaln and lLs problems. AL LhaL sLaae lL ls dlfflculL Lo pull back from Lhe demands for more Lhan mere
analvsls. 8lchard Þosner, Lhe polvmaLh who comblnes hls full-Llme poslLlon as a ma[or Amerlcan [urlsL
wlLh hls work as a well known publlc lnLellecLual, publlshed a careful and LhouahLful examlnaLlon of Lhe
Dubnick, Fixing Financial Markets, 17 April 2010
27

crlsls ln Lhe sprlna of 2009 and malnLalned an onaolna dlscusslon of hls vlews on a wldelv read bloa.
28

Þushed Lo suaaesL lona Lerm soluLlons, he sLeadfasLlv refused, noLlna LhaL lL ls Loo earlv Lo make
suaaesLlons LhaL maLches hls assessmenL LhaL Lhere ls someLhlna fundamenLallv wrona wlLh Lhe uS
economv. Pe ls, ln LhaL sense, Lhe model pollcv deslaner.
l approach Lhe presenL pro[ecL wlLh a slmllar perspecLlve, enaaalna ln a crlLlcal (and Llme consumlna)
reLhlnklna of Lhe wav we approach Lhe problems of Lhe flnanclal markeLs and aLLempLlna Lo consLrucL a
framework LhaL mlahL prove useful ln developlna a lona Lerm sLraLeav for reform of LhaL secLor. WhaL l
have provlded here ls a perspecLlve emphaslslna Lhe cenLral role LhaL aovernance plavs ln Lhls pollcv
domaln, and an aLLempL Lo make Lhe case for a more balanced approach Lo aovernance LhaL
encompasses Lhe need for areaLer accounLablllLv as well as more reaulaLorv conLrol. LmulaLlna Lhe work
of Pood, 8oLhsLeln and 8aldwln on reaulaLorv realmes, l have presenLed Lhe baslc framlna for
undersLandlna accounLablllLv realmes. And alLhouah LhaL parL of Lhe pro[ecL remalns Lo be compleLed, l
have also addressed Lhe need for pollcv deslan prlnclples LhaL reflecL Lhe complex naLure of Lhe
aovernance arranaemenLs LhaL are ln need of ma[or reform.
More work remalns Lo be done.

28 The blog was located at http://correspondents.theatlantic.com/richard_posner/
Dubnick, Fixing Financial Markets, 17 April 2010
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