The current global financial crisis has renewed attention to banking regulation and made clear the potential risks associated with the Anglo-American style of capitalism. In speaking to both of these issues, these timely books explore theoretical concerns related to processes of convergence and divergence in the contemporary era of financial globalization.

Using detailed case studies, Andreas Busch zeroes in on processes of convergence and divergence in banking regulation among the United States, Germany, the United Kingdom, and Switzerland. Busch finds that while there has been considerable convergence in the content of banking regulation, there has been none in the process of political interaction and the institutions of banking regulation policy. In terms of content, he suggests that the Basel Committee on Banking Supervision, a forum of leading regulators and supervisors, has produced a set of standards that while not generating perfect convergence, has led to a common framework for national supervisory rules.

With respect to political processes, Busch finds, for instance, that whereas in the United States, the regulatory process is characterized by adversarial competition among a number of veto players, in Germany, a consultative and often informal style of decision making exists. Finally, in terms of institutions, he highlights, for instance, the contrast between the creation of a unified financial regulator in the United Kingdom and the persistence of a fragmented system of regulation in the United States despite several attempts at consolidation.

These empirical observations, particularly those concerning divergence in the institutions of banking regulation, are important contributions to the literature on financial globalization and national policy autonomy. They indicate the persistence of regulatory divergence even among countries that share the same “variety of capitalism,” and should prove useful as scholars sift through current debates over the costs and benefits—both economic and political—of unified, fragmented, and “twin peaks” models of financial regulation.

The book also suffers from regrettable weaknesses. Its principal weakness is its inability to advance the theoretical literature much beyond the current frontier. In the end, readers learn simply that institutions are path dependent and that they, along with interest groups, shape processes of divergence in the contemporary era of financial globalization. Most readers will not find this argument particularly novel.

On the empirical side, it is unfortunate that the time frame of Busch's study more or less stops in 1999. This time frame does not permit a systematic analysis of the “Basel II” round of negotiations, which began that same year and are currently being implemented. The reader is thus left wondering whether divergence has persisted in the decade since the start of the Basel II negotiations.

Busch may also overestimate the degree of convergence achieved in the content of banking regulation. Consider, for instance, the quality of capital held by banks—a key issue that concerns many policymakers today. The Basel process permits banks to hold a wide range of capital—ranging from common equity to “hybrid instruments”—and to use differing accounting standards. This flexibility, in turn, has led to significant differences in the types of capital held by U.S. and European banks and in the ways in which banks and their regulators have measured this capital. Not surprisingly, this divergence has created significant political differences between U.S. and European officials during the current regulatory debate over strengthening the quality and level of capital held by banks.

Elliot Posner's book examines the apparent convergence of Europe toward American-style stock markets for smaller firms. Between 1995 and 2007, financial elites across Western Europe created more than 20 new stock markets, most of which in the initial years were modeled on the American Nasdaq. Although these new stock markets promised to help channel funds to venture capitalists and small firms, the high-risk, high-reward characteristic of American-style capitalism pushed up against the social compacts that had underpinned European capitalism for decades. Europe, Posner shows, opened itself up to greater marketization and, along with it, greater market discipline.

What makes this convergence toward American-style stock markets for smaller firms so remarkable, Posner suggests, is that financial elites across Europe had actively opposed it for 15 years. Then, in the mid-to-late 1990s, many of these same financial elites became avid proponents of American-style stock markets for smaller firms. What explains this “market mimicry”? Posner's answer focuses on the role of supranational bureaucrats and civil servants within the European Union. His analysis traces their everyday activities that quietly and gradually influence the structure of public debate, the array of relevant interest, and the opportunities available to policy entrepreneurs. Incremental interventions, he shows, can increasingly matter and accumulate over time.

Civil servants in Brussels shaped the political discourse and framed the debate, thereby helping to craft new interests and coalitions. Rather than representing it as a threat to the European social compact, EU officials framed the creation of a pan-European stock market for smaller firms as an important mechanism for job creation, an area in which Europe lagged and which was of growing concern to policymakers. This idea, not surprisingly, generated strong support from national venture capitalists. By the mid-1990s, these advocates had the upper hand. Yet national governments were able to claw back some control by drawing on a previous norm that restricted direct interventions from Brussels in national financial markets. As a result, the idea of a pan-European stock market was defeated in favor of channeling domestic financial activities to national exchanges.

Posner's analysis follows in the footsteps of some, extends the insights of others, and breaks new ground for future research. A key theme throughout the book is that the officials who staff an intergovernmental organization like the EU can exert independent effects on policy outcomes, and that these slow-moving but cumulative changes can reach a tipping point when policies change suddenly. The book is empirically rich and draws on original research across multiple private and public-sector sources, as well as on interviews conducted across the EU.

One minor shortcoming is the book's engagement with principal-agent theory. Although Posner devotes a few pages (157–60) to assessing its potential, he regards principal-agent theory as a rival, rather than a potentially complementary approach. He spends much effort seeking to dispel the notion that state actors directed or delegated the decision to EU officials to create stock markets for smaller firms, but regrettably little to considering those aspects of the process that principal-agent theory can explain. This is not to suggest that Posner does not recognize that states matter, because, as he shows, they clearly do. The point is to suggest that his analysis might have gone further in seeking to develop a more synthetic account of how financial policymaking occurs in the EU. As a consequence, we are left with a clear picture of how EU officials matter in the ways Posner suggests, but not much insight into how various alternatives perspectives on the EU, each shining light on different aspects of the organization, could be potentially synthesized in order to offer a more complete explanation.

Overall, Banking Regulation and Globalization and The Origins of Europe's New Stock Markets both make important contributions to the study of convergence and divergence in the contemporary era of financial globalization. With the current global financial crisis renewing attention to issues raised in these books, one would expect that both will be read widely.