This is an important addition to the convergence–divergence debate on a subject of increasing significance: compliance with international best practice. The author refutes the prevailing expectation of convergence on “regulatory neoliberalism” and finds considerable gaps between cosmetic and substantive compliance with international best practice in four crisis-hit countries: Indonesia, Thailand, Malaysia, and South Korea. After comparing these countries' varying levels of substantive compliance with international standards, he reaches a conclusion that “domestic politics matters” and that cost and benefit calculation of the government and business, rather than international pressure, administrative capacities, and ideational factors, determines the compliance outcome, especially in the short to medium term.

The Asian financial crisis in 1997–98 has been regarded as a watershed that fundamentally transformed domestic financial governance, especially of those countries that had to accept conditionalities by the International Monetary Fund. Especially during the economic crisis, the demands of international financial institutions and foreign investors for adoption of international best practice for financial and corporate governance were seen as a mandate by domestic actors, not a choice. Hardest-hit countries adopted new rules and regulations in the desperate hope of financial stability and capital inflows. For reform-minded domestic actors and surely for international financial institutions, the crisis was a “blessing.”

Andrew Walter reveals that the crisis and subsequent efforts to adopt international standards was neither a blessing for reformers nor an anathema for antireformers. Convergence on “regulatory neoliberalism” rarely took place in these countries. Rather, large gaps between formal rules and substantive compliance with those rules persist in the countries he carefully examines. His key finding is that different international standards entail varying costs for compliance by domestic actors, as well as for monitoring of international actors. Compliance and monitoring costs with regard to the IMF's Special Data Dissemination Standards (SDDS) are much lower than those of such international best practice as the Basle Core Principles for Banking Supervision (BCP), the Principles of Corporate Governance (PCG) of the Organization for Economic Co-operation and Development, and International Financial Reporting Standards (IFRS). Moreover, the compliance costs also depend on domestic institutions, such as the ways in which the state interacts with key financial and nonfinancial firms and their ownership structure. For instance, East Asia's family-owned firms regard the compliance costs as unbearably high and have been most recalcitrant.

According to Walter, inconsistency of domestic actors in their formal adoption of best practice and actual behaviors, or what he calls “mock compliance,” prevails “when private sector compliance costs are high, when the costs of outright noncompliance are high, and when outsiders find it difficult to monitor the true quality of compliance with international standards” (p. 43). More interesting and important is that this mock compliance is sustainable even in the continuing presence of international investors, since it is tolerated as long as the returns on their investments are high enough and the state guarantees survival of noncompliant firms. The existence of mock compliance is not surprising inasmuch as even the most advanced regulatory regimes allow bureaucratic discretion and politically driven regulatory forbearance. His contribution lies in specifying the conditions under which mock compliance persists, even when and where international pressure for substantive compliance is strong.

While the author makes a convincing argument that “domestic politics matters” in his in-depth analyses of four countries, he barely goes beyond the existing wisdom with his focus on the distributional consequences of compliance (p. 36). First, he underemphasizes various ways in which key state actors can design and redesign institutional arrangements to alter compliance costs and to interrupt monitoring by international actors. Governments can design financial regulatory agencies and regulatory policies in such a way that international actors perceive them as more independent and prudential than they actually are, as in the case of Korea's dual financial regulatory regime. Formal rules and institutions are frequently overturned and disabled by ministerial ordinances, presidential decrees, and other extralegal measures, such as administrative guidance. Moreover, Walter leaves unexamined various political factors that might have considerable influences on compliance costs for financial and nonfinancial firms. For instance, while his argument centers on actual and expected distributional outcomes of compliance, diverse actors have different time horizons in calculating compliance costs and benefits, which in turn depend at least partly on such political factors as political (in)stability, political regime type, party politics, and the independence of courts (e.g., frequent changes of presidents in Indonesia after the crisis and the five-year single-term presidency in South Korea). Finally, despite his impressive research and well-designed qualitative analyses of the four countries, the operationalization of his key variables, such as compliance costs, noncompliance costs, and monitoring costs, remains incomplete.

A key event Walter does not pay attention to is Korea's other financial crisis in 2003–4, the so-called credit card crisis, an interesting oversight given his generous evaluation of Korea's compliance in banking regulation as highly substantive (p. 169). When the Korean government adopted best practice in banking regulation and exercised substantive compliance, the problem was the possibility of a credit crunch since tight and prudential regulation would make banks reluctant to extend loans to firms and individuals, leading to their financial difficulties, higher unemployment, and slow economic recovery. The choice of the Korean government was to maintain substantive compliance in banking regulation while relaxing prudential regulation and exercising regulatory forbearance in nonbanking financial institutions, such as the credit card business, to ameliorate the credit crunch problem. The resulting crisis shows us that substantive compliance might produce exactly what it is supposed to prevent from happening when the state and business can externalize the costs of compliance. Depoliticization of one regulatory area might lead to politicization of other regulatory areas.

Overall, Governing Finance, despite minor concerns, is a timely and important contribution to the studies of international financial regulation and deserves serious attention. It should be widely read by scholars, practitioners, and those who are interested in domestic responses to international forces, in general, or in the particular countries that Walter thoughtfully examines.