I spent the last two days at a workshop on the adoption of Basel standards in banking systems of low-income countries. Economists typically discuss regulatory standards under the perspective of maintaining stability and reducing the
risk of fragility. Many of the international standards (such as the Basel capital standards) were developed by and for developed financial systems, without taking into account the needs of developing countries. Nonetheless, many developing
countries have decided to adopt international standards even where they do not seem fit for purpose. In an ESRC-DFID funded research project with Ngaire Woods and Emily Jones from the Blavatnik School of Governance
in Oxford, we are trying to understand what factors drive these decisions, in terms of policy objectives, influence of domestic and foreign banks, internal political power struggles and influence of international financial institutions. Ten country case
studies form the core of the project, ranging from Vietnam over several African countries to Bolivia, from non-adopters and closed financial systems, such as Ethiopia, to adopters with open and competitive financial systems, such as Kenya. It seems that in
many (though not all) cases, adopting international standards was used as signaling device to international investors, but there is quite a network effect as well, across regulators and with the influence of international financial institutions.