Disciplining the Neoliberal Bank: Credit Risk Regulation and the Financialization of Loan Management

Abstract

This paper seeks to contribute to thinking on the role of public authorities in the regulation of economic affairs in the context of neoliberal financialized capitalism. It is based on examination of changes regarding the requirements for credit risks from the Basel I accords (1988) to the Basel II and III accords (2004-2010). The shift on this question in the Basel Accords is much more than a simple tidy-up. The literature shows that the reform of the Basel requirements for credit risk was the product of a neoliberal political agenda carried by lobbies representing market actors. Our study of the instruments used to assess credit risk and to define the associated capital requirements under Basel II and III shows that the regulatory framework effectively delegates management of the security of the financial system to the actors in the system. Yet, our study also stresses that the autonomy won through this move towards self-regulation is associated with the implementation of new types of constraints. In our case, these new constraints are taking the form of an impressive system of monitoring and control of internal risk management practices. This system is then coupled with financial incentives, in a way that has been carefully designed to lead the banks to adopt specific “financialized” practices. Michel Foucault argued in his classes on neoliberalism that neoliberalism requires, not withdrawal of the State as in traditional liberalism, but a transformation of practices by the State, which on the contrary actively intervenes to produce the right conditions for a market, and help markets to emerge and operate whenever possible. Among the necessary conditions for construction of these markets, he also stressed the importance of producing subjects (through the intermediary of biopolitics) able to act in a world made up of markets, and that the form of behaviour expected of these subjects is that of the enterprise, leading to extension of this form to all sorts of actors who used to operate in different ways (nonprofit organizations, salaried individuals, etc). Our case allows to go beyond this analysis and show that when the market agents are enterprises, they too must be subjected to active production and a conformation process, and that it cannot be just any type of enterprise; it too must go through a subjectification process that also brings a range of power techniques into play. The case consequently shows the concurrent development of liberty and discipline for enterprises in neoliberal regimes. It also offers an opportunity for close examination of the nature of the disciplinarization that goes hand in hand with neoliberal financialized capitalism. In this perspective, it especially stresses three intertwined processes: the regulator’s construction of financial incentives, the imposition of working methods and the rise of a bureaucracy of control. Finally, methodologically, this study underlines the value of approaching these issues by an in-depth analysis of the technical aspects of regulatory provisions, since this approach enables us to construct the contrasting image of the changes presented here.