Skip to main content

Global finance as a politicized habitat

  • William Kindred Winecoff

Predominant models of financial regulation based on representative agents—in both the public interest and public choice traditions—assume that competitive pressures in financial markets undermine prudential behavior by firms in the absence of regulation. One empirical expectation of these models is behavioral: firms should adjust their risk-taking behaviors in response to the regulatory environment they face but should not over-comply with regulations. That is, the central tendency of bank behaviors should hew closely to regulatory minima and the variance should be small. I first demonstrate that this expectation is not borne out by the empirical record and then advance a theoretical argument that does not rely on a representative agent model. I argue that firms face a range of incentives from markets and governments that condition their risk-taking behaviors, and firms choose a “preferred habitat” within a market structure. Some of these incentives are towards greater risk-taking, while others are in the direction of greater prudence. This framework provides opportunities for examining financial market actors in a realistic context, and offers ways to unify micro-level and structural analyses of the political economy of global finance.

  • View HTML
    • Send article to Kindle

      To send this article to your Kindle, first ensure is added to your Approved Personal Document E-mail List under your Personal Document Settings on the Manage Your Content and Devices page of your Amazon account. Then enter the ‘name’ part of your Kindle email address below. Find out more about sending to your Kindle. Find out more about sending to your Kindle.

      Note you can select to send to either the or variations. ‘’ emails are free but can only be sent to your device when it is connected to wi-fi. ‘’ emails can be delivered even when you are not connected to wi-fi, but note that service fees apply.

      Find out more about the Kindle Personal Document Service.

      Global finance as a politicized habitat
      Available formats
      Send article to Dropbox

      To send this article to your Dropbox account, please select one or more formats and confirm that you agree to abide by our usage policies. If this is the first time you use this feature, you will be asked to authorise Cambridge Core to connect with your <service> account. Find out more about sending content to Dropbox.

      Global finance as a politicized habitat
      Available formats
      Send article to Google Drive

      To send this article to your Google Drive account, please select one or more formats and confirm that you agree to abide by our usage policies. If this is the first time you use this feature, you will be asked to authorise Cambridge Core to connect with your <service> account. Find out more about sending content to Google Drive.

      Global finance as a politicized habitat
      Available formats
Corresponding author
* Corresponding Author: William Kindred Winecoff, Department of Political Sceince, Indiana University, 210 Woodburn Hall, 1100 East Seventh Street, Bloomington IN 47405-7110, e-mail:
Hide All

An earlier version of this paper was presented at the 2016 Annual Meeting of the American Political Science Association. For excellent comments on previous versions I thank Sarah Bauerle Danzman, Dan Drezner, Tim Marple, Thomas Oatley, Herman Schwartz, Travis Selmier, Kevin Young, and two anonymous reviewers. I especially thank Iain Hardie for initially pointing me to the preferred habitats literature. This paper was improved immensely by their suggestions and criticisms. Remaining errors are mine, of course.

Hide All
Abbott, Kenneth W., Green, Jessica F., and Keohane, Robert O.. 2016. “Organizational Ecology and Institutional Change in Global Governance.” International Organization 70(2): 247277.
Admati, Anat, and Hellwig, Martin. 2014. The Bankers' New Clothes: What's Wrong with Banking and What to Do about It. Princeton, NJ: Princeton University Press.
Allen, Franklin, and Babus, Ana. 2009. Networks in Finance.” In The Network Challenge: Strategy, Profit, and Risk in an Interlinked World, edited by Kleindorfer, Paul, Yoran (Jerry), Wind, and Gunther, Robert. Upper Saddle River, NJ: Wharton School Publishing.
Bagehot, Walter. 1873. Lombard Street: A Description of the Money Market. London: Henry S. King and Co.
Barth, James R., Caprio, Gerard Jr., and Levine, Ross. 2013. “Bank Regulation and Supervision in 180 Countries from 1999 to 2011.Journal of Financial Economic Policy 5(2):111219.
Basinger, Scott J., and Hallerberg, Mark. 2004. “Remodeling the Competition for Capital: How Domestic Politics Erases the Race to the Bottom.” American Political Science Review 98(2): 261276.
Bech, M.L., and Atalay, E.. 2008. “The Topology of the Federal Funds Market.” Frankfurt, Germany: European Central Bank Working Paper 986.
Behr, Patrick, and Schmidt, Reinhard H.. 2016. “The German Banking System: Characteristics and Challenges.” In The Palgrave Handbook of European Banking, edited by Beck, Thorsten and Casu, Barbara. London: Palgrave Macmillan.
Beunza, Daniel, and Stark, David. 2012. “From dissonance to resonance: cognitive interdependence in quantitative finance.” Economy and Society 41(3): 383417.
Brady, Steffanie A., Anadu, Ken E., and Cooper, Nathaniel R.. 2012. “The Stability of Prime Money Market Mutual Funds: Sponsor Support from 2007 to 2011.” Boston, MA: Federal Reserve Bank of Boston Risk and Policy Analysis Unit Working Paper RPA 12–3.
Calomiris, Charles W., and Haber, Stephen H.. 2014. Fragile by Design: The Political Origins of Banking Crises and Scarce Credit. Princeton, NJ: Princeton University Press.
Chen, Han, Clouse, Jim, Ihrig, Jane, Klee, Elizabeth, and Chen, Han. 2016. “The Federal Reserve's Tools for Policy Normalization in a Preferred Habitat Model of Financial Markets.” Journal of Money, Credit, and Banking 48(5): 921955.
Cihak, Martin, Demirguc-Kunt, Asli, Feyen, Erik, and Levine, Ross. 2012. “Benchmarking Financial Systems around the World.” Washington, DC: World Bank Policy Research Working Paper 6175.
Cline, William R. 2015. “Testing the Modigliani-Miller Theorem of Capital Structure Irrelevance for Banks.” Washington, DC: Peterson Institute for International Economics Working Paper 15–8.
Cochrane, John H. 2011. “Presidential Address: Discount Rates.” The Journal of Finance 66(4): 10471108.
Cranmer, Skyler J., and Desmarais, Bruce A.. 2011. “Inferential Network Analysis with Exponential Random Graph Models.” Political Analysis 19(1): 6686.
Culbertson, J. 1957. “The Term Structure of Interest Rates.” Quarterly Journal of Economics 71(4): 485517.
DeAngelo, Harry, and Stulz, René. 2013. “Why High Leverage is Optimal for Banks.” Cambridge, MA: NBER Working Paper 19139.
Drezner, Daniel W. 2007. All Politics Is Global: Explaining International Regulatory Regimes. Princeton, NJ: Princeton University Press.
Drezner, Daniel W. 2009. “Bad Debts: Assessing China's Financial Influence in Great Power Politics.” International Security 34(2): 745.
Eichacker, Nina. 2015. “German Financialization, the Global Financial Crisis, and the Eurozone Crisis.” Amherst, MA: University of Massachusetts Amherst Political Economy Research Institute Working Paper 404.
Elliott, Matthew, Golub, Benjamin, and Jackson, Matthew O.. 2014. “Financial Networks and Contagion.” American Economic Review 104(10): 3115–53.
Esposito, Elena. 2011. The Future of Futures: The Time of Money in Financing and Society. Cheltenham, UK: Edward Elgar Publishing.
Esposito, Elena. 2013. “The structures of uncertainty: performativity and unpredictability in economic operations.” Economy and Society 41(1): 102129.
European Central Bank. 2010. Recent Advances in Modelling Systemic Risk Using Network Analysis. Frankfurt, Germany: European Central Bank.
Fligstein, Neil. 2001. The Architecture of Markets: An Economic Sociology of Twenty-First-Century Capitalist Societies. Princeton, NJ: Princeton University Press.
Fligstein, Neil, and Calder, Ryan. 2015. “Architecture of Markets.” In Emerging Trends in the Social and Behavioral Sciences, edited by Scott, Robert, and Kosslynj, Stephan. Hoboken, NJ: John Wiley and Sons.
Friedman, Jeffrey, and Kraus, Wladmimir. 2011. Engineering the Financial Crisis: Systemic Risk and the Failure of Regulation. Philadelphia, PA: University of Pennsylvania Press.
Goodhart, Charles A.E., and Lastra, Rosa M.. 2012. “The boundary problems in financial regulation.” In Research Handbook on International Banking and Governance, edited by Barth, James R., Lin, Chen, and Wihlborg, Clas. Cheltenham, UK: Edward Elgar Publishing.
Hall, Peter, and Soskice, David, (eds.). 2001. Varieties of Capitalism: The Institutional Foundations of Comparative Advantage. New York: Oxford University Press.
Hardie, Iain, Howarth, David, Maxfield, Sylvia, and Verdun, Amy. 2013. “Banks and the False Dichotomy in the Comparative Political Economy of Finance.” World Politics 65(4): 691728.
Heemskerk, Eelke M., Young, Kevin, Takes, Frank W., Cronin, Bruce, Garcia-Bernardo, Javier, Popov, Vladimir, Winecoff, W. Kindred, Henriksen, Lasse Folke, and Laurin-Lamonthe, Audrey. 2017. “Big Corporate Network Data: Problems, Diagnostics, and Fixes.Global Networks forthcoming.
Heemskerk, Eelke M., Fennema, Meindert, and Carroll, William K.. 2016. “The global corporate elite after the financial crisis: evidence from the transnational network of interlocking directorates.” Global Networks 16(1): 6888.
Heemskerk, E.M., and Takes, F.W.. 2016. “The Corporate Elite Community Structure of Global Capitalism.” New Political Economy 21(1): 90118.
Helleiner, Eric. 2011. “Understanding the 2007–2008 Global Financial Crisis: Lessons for Scholars of International Political Economy.” Annual Review of Political Science 14: 6787.
Helleiner, Eric, and Pagliari, Stefano. 2011. “The End of an Era in International Financial Regulation? A Postcrisis Research Agenda.” International Organization 65(1): 169200.
Howarth, David, and Quaglia, Lucia. 2013. “Banking on Stability: The political economy of new capital requirements in the European Union.” Journal of European Integration 3(3): 333–46.
Iori, Giulia, de Masi, Giulia, Precup, Ovidiu Vasile, Gabbi, Giampaolo, and Calderelli, Guido. 2008. “A network analysis of the Italian overnight money market.” Journal of Economic Dynamics and Control 32(1): 259–78.
Irwin, Neil. 2013. The Alchemists: Three Central Bankers and a World on Fire. New York: Penguin Press.
Joyce, Michael, Miles, David, Scott, Andrew, and Vayanos, Dimitri. 2012. “Quantitative Easing and Unconventional Monetary Policy—An Introduction.The Economic Journal 122(November): F271F288.
Kapstein, Ethan B. 1989. “Resolving the Regulator's Dilemma: International Coordination of Banking Regulations.” International Organization 43(2): 323–47.
Kapstein, Ethan B. 1991. Supervising International Banks: Origins and Implications of the Basle Accord. Princeton, NJ: Princeton University Department of Economics Essay in International Finance.
Kapstein, Ethan B. 1994. Governing the Global Economy: International Finance and the State. Cambridge, MA: Harvard University Press.
Kashyap, Anil K., and Zingales, Luigi. 2010. “The 2007–8 financial crisis: Lessons from corporate finance.” Journal of Financial Economics 97(3): 303305.
Kindleberger, Charles P., and Aliber, Robert. 2005. Manias, Panics, and Crashes: A History of Financial Crises. Fifth ed. Hoboken, NJ: John Wiley and Sons.
Lépinay, Vincent-Antonin. 2007. “Decoding Finance: Articulation and Liquidity around a Trading Room.” In Do Economists Make Markets? On the Performativity of Economics, edited by Mackenzie, Donald, Muniesa, Fabian, and Siu, Lucia. Princeton, NJ: Princeton University Press.
Mackenzie, Donald. 2005. “Opening the black boxes of global finance.” Review of International Political Economy 12(4): 555576.
Mackenzie, Donald. 2006. An Engine, Not a Camera: How Financial Models Shape Markets. Cambridge, MA: MIT Press.
Mackenzie, Donald, Muniesa, Fabian, and Siu, Lucia, (eds.). 2007. Do Economists Make Markets? On the Performativity of Economics. Princeton, NJ: Princeton University Press.
Marx, Karl. 1867. Capital: A Critique of Political Economy. 1967 ed. New York: International Publishers.
Maxfield, Sylvia, Winecoff, W. Kindred, and Young, Kevin. 2017. “An Empirical Test of the Financialization Convergence Hypothesis.Review of International Political Economy forthcoming.
Minoiu, Camelia, and Reyes, Javier A.. 2013. “A network analysis of global banking: 1978–2010.” Journal of Financial Stability 9(2): 168184.
Minsky, Hyman P. 1986. Stabilizing an Unstable Economy. New Haven, CT: Yale University Press.
Mishkin, Frederic S. 1980. “Is the Preferred-Habitat Model of the Term Structure Inconsistent with Financial Market Efficiency?Journal of Political Economy 88(2): 406411.
Modigliani, Franco, and Miller, Merton H.. 1958. “The Cost of Capital, Corporation Finance and the Theory of Investment.” The American Economic Review 48(3): 261–97.
Modigliani, Franco, and Miller, Merton H.. 1963. “Corporate income taxes and the cost of capital: a correction.” American Economic Review 53(3): 433–43.
Modigliani, Franco, and Sutch, Richard. 1967. “Debt Management and the Term Structure of Interest Rates: An Empirical Analysis of Recent Experience.” Journal of Political Economy 75(4): 569589.
Modigliani, Franco, and Shiller, Robert J.. 1973. “Inflation, Rational Expectations and the Term Structure of Interest Rates.” Economica 40(1): 1243.
Mosley, Layna. 2003. Global Capital and National Governments. Cambridge, UK: Cambridge University Press.
Mosley, Layna, and Singer, David Andrew. 2009. “The Global Financial Crisis: Lessons and Opportunities for International Political Economy.” International Interactions 35(4): 420–29.
Mügge, Daniel. 2005. “Diluting Varieties of Capitalism from below: Competitive imperatives in financial markets and the end of positive coordination.” Presented at the Annual Meeting of the European Consortium for Political Research, Budapest, Hungary.
Muniesa, Fabian, Millo, Yuval, and Callon, Michel. 2007. “An introduction to market devices.The Sociological Review 55(Supplement s2): 112.
Nelson, Stephen C., and Katzenstein, Peter J.. 2014. “Uncertainty, Risk, and the Financial Crisis of 2008.International Organization forthcoming.
Newman, Abraham, and Posner, Elliot. 2011. “International Interdependence and Regulatory Power: Authority, mobility, and markets.” European Journal of International Relations 17(4): 745770.
Ngo, Phong T.H. 2006. “A Theory of Precationary Regulatory Capital in Banking.International Review of Finance 6(3–4): 99128.
Oatley, Thomas, and Nabors, Robert. 1998. “Redistributive Cooperation: Market Failure, Wealth Transfers, and the Basle Accord.” International Organization 52(1): 3554.
Oatley, Thomas, and Winecoff, W. Kindred. 2012. “The Domestic Rooting of Fi- nancial Regulation in an Era of Global Capital Markets.” In Research Handbook on Hedge Funds, Private Equity and Alternative Investments, edited by Athanassiou, Phoebus. London: Edward Elgar Publishing.
Oatley, Thomas, Winecoff, W. Kindred, Danzman, Sarah Bauerle, and Pennock, Andrew. 2013. “The Political Economy of Global Finance: A Network Model.” Perspectives on Politics 11(1): 133–53.
Ostrom, Elinor. 1990. Governing the Commons: The Evolution of Institutions for Collective Action. Cambridge, UK: Cambridge University Press.
Ostrom, Elinor. 1998. “A Behavioral Approach to the Rational Choice Theory of Collective Action.” American Political Science Review 92(1): 122.
Ostrom, Elinor. 2009. “A General Framework for Analyzing Sustainability of Social-Ecological Systems.” Science 325(5939): 419422.
Ostrom, Elinor. 2010. “Beyond Markets and States: Polycentric Governance of Complex Economic Systems.” American Economic Review 100(3): 641–72.
Peltzman, Sam. 1970. “Capital Investment in Commercial Banking and its Relation to Portfolio Regulation.” Journal of Political Economy 78(1): 126.
Peltzman, Sam. 1976. “Toward a More General Theory of Regulation?Journal of Law and Economics 19(2): 211–40.
Peltzman, Sam. 1989. “The economic theory of regulation after a decade of deregulation.” In Brookings Papers on Economic Activity: Microeconomics. Washington, D.C.: The Brookings Institution, 159.
Pigou, Arthur C. 1932. The Economics of Welfare. London: Macmillan and Co.
Polanyi, Karl. 1944. The Great Transformation: The Political and Economic Origins of Our Time. 2001 ed. Boston, MA: Beacon Press.
Powell, Walter W. 1990. “Neither Market Nor Hierarchy: Network Forms of Organization.” Research in Organizational Behavior 12(2): 295336.
Rajan, Raghuram G. 2010. Fault Lines: How Hidden Fractures Still Threaten the World Economy. Princeton, NJ: Princeton University Press.
Reinhart, Carmen M., and Rogoff, Kenneth S.. 2009. This Time Is Different: Eight Centuries of Financial Folly. Princeton, NJ: Princeton University Press.
Rosas, Guillermo. 2006. “Bagehot or Bailout? An Analysis of Government Responses to Banking Crises.” American Journal of Political Science 50(1): 175–91.
Seabrooke, Leonard, and Tsingou, Eleni. 2012. “Revolving Doors and Professional Ecologies in International Financial Governance.” Presented at the PIPES Work- shop, Frederiksberg, Denmark.
Selmier II, W. Travis. 2014. “Why Club Goods Proliferated in Investment Finance.” In Handbook of the International Political Economy of Monetary Relations, edited by Oatley, Thomas, and Winecoff, W. Kindred. Cheltenham, UK: Edward Elgar Publishing.
Selmier II, W. Travis. 2016. “Design Rules for More Resilient Banking Systems.Policy and Society 35(3): 253267.
Selmier II, W. Travis. 2017. “An Institutional Perspective of International Financial Risk.Business and Politics forthcoming in this volume.
Selmier II, W. Travis, Penikas, Henry, and Vasilyeva, Ksenia. 2014. “Financial Risk as a Good.” Procedia Computer Science 31(1): 115–23.
Simmons, Beth A. 2001. “The International Politics of Harmonization: The Case of Capital Market Regulation.” International Organization 55(3): 589620.
Singer, David Andrew. 2004. “Capital Rules: The Domestic Politics of International Regulatory Harmonization.” International Organization 58(3): 531–65.
Singer, David Andrew. 2007. Regulating Capital: Setting Standards for the International Financial System. Ithaca, NY: Cornell University Press.
Soramäki, Kimmo, Bech, Morten L., Arnold, Jeffrey, Glass, Robert J., and Beyeler, Walter E.. 2007. “The topology of interbank payment flows.” Physica A 379(1): 317–33.
Stigler, George J. 1971. “The Theory of Economic Regulation.” The Bell Journal of Economics and Management Science 2(1): 321.
Strohsal, Till. 2013. “Testing the Preferred-Habitat Theory: The Role of Time-Varying Risk Aversion.” Berlin, Germany: Humboldt University Economic Risk Working Paper SFB 649.
Vayanos, Dimitri, and Vila, Jean-Luc. 2011. “A preferred-habitat model of the term structure of interest rates.” London, UK: London School of Economics Working Paper.
Walter, Andrew. 2012. “Over-compliance with Basel Standards.” Presentation.
Winecoff, W. Kindred. 2013. “Global Banking As a Complex Political Economy.” Presented at the Annual Meeting of the American Political Science Association, Chicago, IL.
Winecoff, W. Kindred. 2014. “Bank Regulation, Monetary Incentives, and Macroeconomic Management in OECD Economies.” International Studies Quarterly 58(3): 448–61.
Winecoff, W. Kindred. 2015. “Financial Power and the Global Crisis: A Network Analytical Approach.” Business and Politics 17(3): 495526.
Woll, Cornelia. 2014. The Power of Inaction: Bank Bailouts in Comparison. Ithaca, NY: Cornell University Press.
Young, Kevin. 2012. “Transnational Regulatory Capture? An Empirical Examination of Transnational Lobbying over the Basel Committee on Banking Supervision.” Review of International Political Economy 19(4): 663–88.
Young, Kevin. 2014. “The complex and covert web of financial protectionism.” Business and Politics 16(4): 579613.
Young, Kevin. 2015. “Not by structure alone: power, prominence, and agency in American finance.Business and Politics 17(3): 443472.
Zysman, John. 1983. Governments, markets, and growth. Ithaca, NY: Cornell University Press.
Recommend this journal

Email your librarian or administrator to recommend adding this journal to your organisation's collection.

Business and Politics
  • ISSN: -
  • EISSN: 1469-3569
  • URL: /core/journals/business-and-politics
Please enter your name
Please enter a valid email address
Who would you like to send this to? *


Altmetric attention score

Full text views

Total number of HTML views: 0
Total number of PDF views: 0 *
Loading metrics...

Abstract views

Total abstract views: 0 *
Loading metrics...

* Views captured on Cambridge Core between <date>. This data will be updated every 24 hours.

Usage data cannot currently be displayed