The Political Economy of Basel III: Liquidity Hierarchies and Policy Autonomy in Subordinate Financialized Economies.

Summary
This project investigates the relationship between Basel III and the distribution of monetary power throughout the international political economy. In particular, the work focuses on the impact of Basel III's liquidity hierarchy on economic policy autonomy outside the core of the global financial system. It presents a quantitative, political-econometric estimation of the role of structural liquidity hierarchies in constraining policy autonomy in 'subordinate financialised' political economies, and how this global dynamic is interrupted and disturbed by regulatory convergence around Basel III. The institutional and political characteristics of specific national divergences from Basel III liquidity rules are contextualised and explained in relation to the structural monetary dynamics of the global political economy, presenting a rigorous critique of the extant public policy literature. The work elucidates a contradiction within the macroprudential stabilization project, that this toolkit, designed to embed financialization, has the potential to promote peripherality to global finance by exacerbating asymmetries of monetary power.
Literature & Theories
This inter-disciplinary project intertwines multiple separate literatures, in particular the public policy debate on the strategic determinants of regulatory convergence, and macro-economic questions of the efficacy of macroprudential supervision. The critical political economy literature on "subordinate financialization" and "dependent development" here serves as a theoretical map from which to understand the problem. Whilst all BIS members seek to converge broadly around Basel III for various strategic motives, only certain states are home to a diversity of institutions capable of issuing eligible regulatory capital i.e. High-Quality Liquid Assets (HQLA). In the absence of negotiated divergences, sovereign debt from the global north serves as the default means of compliance with new prudential policies such as the liquidity coverage ratio, potentially exacerbating extant relationships of dependency and subordination. As of yet, there are no comprehensive studies incorporating Basel III into the critical literature on monetary hierarchy, or the role of this dynamic in structuring Basel III's global implementation.
Methodology & Data
The study builds upon the IMF's 'Integrated Macro Prudential Policy database' by extracting new data on divergences from Basel III's liquidity treatment. This will be conducted via interviews with, and documents from, prudential authorities in states which fit the criteria: 'financialized' political economies, outside the core of the global financial system. This dataset will log what alternative arrangements states have entered into to construct HQLA and funding portfolios, e.g. foreign currency denominated assets, contractual liquidity facilities with monetary authorities, or the incorporation of lower grade assets. This data will then be used to create more substantive empirical metrics to estimate the structure of liquidity than existing ones, e.g. spatial proxies or M2-Dollar ratios, and tested through structural models against existing publicly available macro-economic datasets to estimate Basel III's potential impact on the structure of the global monetary system, and its fiscal and monetary footprint on states of the case study.
Outcomes
In summary, three core processes will be achieved from this project: 1) the development of a rich analytical map of national divergences from Basel III liquidity rules, 2) a critical assessment of the factors motivating divergent implementation which incorporates structural monetary hierarchies as a driving factor, and 3) a rigorous evaluation of how those hierarchies impact the efficacy of macroprudential supervision vis-à-vis relationships of subordination in global finance.