REGULATORY COMPETITION AND INTERNATIONAL-COOPERATION

Recent research has shown that regulatory competition does not necessa rily lead to downward pressures on regulation, but may at times also p ush the level of regulation upwards. Extending David Vogel's 'Californ ia effect' argument, this article shows that such upward pressure may not only result directly from the dynamics of the competitive process but also from international co-operation. Evidence from two case studi es on international capital market regulation is used to identify the conditions under which co-operation in the shadow of regulatory compet ition is likely to succeed or fail. The successful multilateral standa rdization of banking capital requirements in the BIS is compared to fa iled attempts to harmonize interest taxation across EC member states.