Globalizing from the inside out: national responses to international soft law in Latin America’s banking sector

Building from historical institutionalist contributions, this article explains why domestic regulators implement global rules to govern their banking markets. Although this question is not new, this paper tackles it with a novel approach. It frames regulatory globalization as an inside-out process in which domestic coalitions leverage international soft law’s power resources to advance their local agendas. The article highlights how local players utilize Basel’s power resources to build state regulatory capacities and market compliance conditions and, subsequently, strengthen those capacities and conditions to prompt regulatory convergence. To test this argument, the author conducts comparative case studies with Brazil, Chile, and Mexico, which challenge the conventional wisdom on rule harmonization. While the literature correlates convergence to externally driven, market-based economies and divergence to state-led, crony economies, case studies show the highest rate of convergence in Brazil’s state-led economy and the lowest rate in Chile’s market-based economy, with Mexico in between. The article concludes that regulatory politics is an iterative institutional process that does not necessarily coincide with a country’s variety of capitalism. It also points out that local policymakers are not merely standard followers but political players who mobilize global resources to further their interests while governing finance.