Transnational Veto Players and the Practice of Financial Reform

• Concepts from domestic and comparative politics can be applied in a transnational context; the article develops the notion of ‘transnational veto players’ to explain the practice of financial reform.
• Understanding the nature of constituency in a transnational context is important for explanations of actor preferences and the mode of policy that ensues.
• While actors involved in global standard-setting in finance have formal defined constituencies, when operating in a transnational setting their interactions render their constituencies diffuse, including peers and other interlocutors.
• In transnational settings, actors act as veto players by defining and delimiting the pool of ideas available for reform.
• ‘Too big to fail’ has been highlighted as an important target for reform but the resulting changes in the regulatory treatment of large financial institutions do not alter their core functions.

Policy processes in transnational settings are shaped by actors whose approval and consent are required for reform to take place. These ‘transnational veto players’ frame and delimit policy options. The concept of ‘transnational veto players’ is developed through an empirical analysis of global reforms in the regulatory treatment of large financial institutions deemed ‘too big to fail’. Actors debating and developing policy on ‘too big to fail’ may have formal defined constituencies, as regulators, academics or lobbying organisations, but in their transnational interactions they are also informed by a diffuse constituency of peers through their multiple associations within policy communities. These interactions determine which policy ideas are permissible and how they are adopted. The ‘too big to fail’ case shows how reform activity to curtail the risks posed by large financial institutions may also inadvertently strengthen their position as transnational veto players.