The complex and covert web of financial protectionism

Abstract

In the wake of the 2008 financial crisis, governments turned to protectionist policies to support their financial sectors. Yet these policy choices have been highly variegated, and like many recent protectionist policies reflect a process of adaptation to changing circumstances. Using data on a variety of government interventions in the financial sector since the crisis, I show that financial protectionism comes in at leastthreetypes, only two of which have witnessed a traceable increase since the global financial crisis. These are protection through market entry restrictions (Type 1), through asymmetrically applied regulation (Type 2) and protection through subsidies (Type 3). While Type 1 has not appeared to change significantly since the crisis, Type 2 and Type 3 have. I present empirical evidence which suggests that while Type 3 financial protectionism proliferated during and shortly after the crisis, it is unlikely to continue. Type 2 financial protectionism, I conclude, is more likely to take off into the future because of the nature of interest group effects associated with asymmetric regulation as a form of government intervention.