1 The empirical analysis and the lessons to be drawn from it

Her empirical work starts with an outline of the costs of bail-outs for governments, pointing to the variation in government support, then to point out the differences in the costs of government support and the conditionalities attached. With respect to the conditionalities attached, Woll rightly points out that the important empirical question is the actual enforcement of these conditionalities. According to existing reports, this enforcement does actually vary in practice (Barnett & Duval, 2005, p.40). However, while this point is mentioned, enforcement of conditionalities is not investigated in the book. Furthermore, it should be noted that the active contribution of the banking industries in the different countries is not directly calculated, but rather proxied by the conditionalities of the bail-out packages. ^[1] Her analysis shows that the costs of government support for banks were particularly high in the UK and particularly low in the US, with France, Germany, Denmark and Ireland lying in between. The most important tables for her argument (Barnett & Duval, 2005, p.41, 43) show the involvement of bank industry in the funding and administration of bail-outs, which varies between public-private schemes in France and Denmark on the one hand and purely public schemes in the other four cases. The involvement in these funds is the crucial variable in the analysis.

2 The theoretical frame: Review and possible amendments

How could the differential involvement of banks in these bail-out schemes be explained? Reviewing her different case studies, the author develops a framework of facilitating and determining conditions that is explicitly based on collective action theory. She focuses on the homogeneity of the banking sector in terms of business models and institutional set-up (e. g. public vs. private), the number of participating institutions as well as the formal and informal institutional arrangements that exist for coordination ex ante both between banks (such as between different banking associations) as well as between governments and banks as facilitating conditions. One determining factor in these dynamics she identifies is the health of the leading institution which determines if that institution will organize collective participation or will walk away from the negotiation table with the government. Here we find a first specification of her collective inaction argument, which links the collective decision to inaction (as portrayed in Chapter 3) to the decision by the leading bank, which hence becomes the focal actor playing the game of chicken with the government. This is not to say that the other actors and the institutional context do not matter for collective action, but the participation of the largest bank seems to be a necessary condition for collective action. Woll writes “As in all collective collective action issues, if the most important players have no interest in participating and/or can shift their activities elsewhere, the joint enterprise will fall apart. Inversely, if the most important players have to manage their own difficulties, they might be interested in pursuing or even organizing a joint rescue effort.” (Woll, 2014, p.171)

For this claim, her paired case studies do provide some evidence. It seems clearest for the case of Germany, the US and the UK, in which the leading institutions (Deutsche Bank, JP Morgan, HSBC, Standards Chartered and Barclays) were not as affected as the smaller private banks in Germany, the three private banks rescued by the British government or the investment banks in the US case, leading to hesitancy with respect to industry engagement. Also, the case of Denmark points in a similar direction. As the largest bank is affected, there is industry participation. Especially in the case of Germany, she can show how the government initially sought to incentivize industry participation through a strategy of reluctant engagement, hoping to thus elicit private action. At the same time, and while claiming that collective industry action is common in Germany, she also portrays the fragmentation of the German sector into its three different pillars, with Savings and Loans banks refusing any support for the private banking pillar. This co-existence of causes means that it is difficult to decide whether the health of the leading bank is the determining factor and whether we are indeed witnessing a game of chicken between the government and the banking industry. The biggest problem here is the epistemological problem of proving that collective inaction is a willful act, which in her ultimate analysis falls on the leading bank. Woll acknowledges this when she discusses the, as she writes “Although harder to grasp, inactive power is the mirror image of active power” (Woll, 2014, p.58, emphasis mine). ^[3]

Moreover, the case of France, which is possibly the most interesting in the sample, casts a certain doubt on this ranking of causes. In France, where a homogenous sector dominated by six major banks with close ties among each other and with the government jointly negotiated a bail-out deal that avoided stigmatization of weak banks and involved banks directly in the mutual supervision of bail-out schemes. In this example of government-industry collaboration, however, the leading bank, BNP Paribas was less affected by the crisis than its peers, in particular compared to other smaller banks, especially Natixis. The involvement of the largest bank which was rather healthy sits uneasy with the proposed framework. Instead of walking away, BNP Paribas supports the scheme and is actively involved in its design. If its own financial health was the primary factor in its decision making, it might have just as well walked away. This fact points to the possibility, that interests of the largest institution might simply not be sufficient as an explanatory factor. The strong inter-bank cooperation as well as the long-standing cooperation with the government might be more important factors determining the action of BNP Paribas following a logic of appropriate action. The fact that in Paris, in contrast to London, foreign banks were much less present might have facilitated such persistence of club like governance arrangements. ^[4]

A second theoretical possibility is to expand the time frame for the games played between government and banks and including the question in how far banks need governments, that is the structural power of governments over banks might be an interesting solution. In repeated games, banks might stand to benefit from prior cooperation with governments, as was the case for BNP Paribas. The financial support of the French government proved essential in the acquisition of the Belgian banking conglomerate Fortis in 2010 (Jabko & Massoc, 2012 characterize this as the gift-giving aspect of the French network), cementing the status of BNP Paribas as a European, rather than merely a French bank.

A second step might be to move away from an emphasis on game-theoretical framing and to open up the research agenda for more sociologically inclined studies, focusing on the social norms linking intra-national and inter-national elite networks and how these might be upheld in different fora of interaction. Woll herself points in that direction, using Ostrom’s work on the provision of public goods (Woll, 2014, p.59), but does not expand on these insights in her analysis. Pursuing that agenda, by investigating directly different fora of interaction between governments and finance would allow us to better understand the network foundations of elite failures that have been described as “debacles nourished by hubris” (Engelen et al., 2011, p.9), as well as the conditions for elite coordination.

Moving away from the game theoretical framework of the game of chicken would have the advantage of opening up a venue for further theoretical thinking about elite coordination vs. elite failure rather than the corporate exercise of power by banks. This would allow the removal of the questionable equation of bank participation in the government bailouts and their collective exercise of power, ^[5] which stands in contradiction to the author’s own sophisticated theoretical reasoning about power. Woll rightly criticizes the tautological approach to power, which infers power from outcome (Woll, 2014, p.54). However, she cannot but fall into the same trap when she is seeking to gauge power from industry contribution to bail-outs. Instead, it might be worthwile to focus on the conditions that permit joint collective action by these two elite networks, establishing a different kind of power; the power to deal with emergencies and crises. While we do not have counterfactuals, her cases allow one to speculate that elite coordination, such as in the case of France and Denmark allow the reduction of costs of bank-bail-outs to society as a whole, be they borne out by the industry or the tax-payer. By preventing stigmatization of individual banks (also achieved in the case of the US), the overall dynamics of banking crises are changed so that their depth is supposedly lower.

3 Conclusion and outlook

This is a well-researched book that provides important comparative results on the design and execution of bail-out schemes. Particularly impressive is the combination of secondary sources and interviews, which is capable to provide a lively picture of the events unfolding. Furthermore, by applying a qualitative method to the problem of bank-bail-outs, the author can add a better understanding to these events. Quantitative method, as Woll points out are limited in this respect, as the true costs of bailout are hard to estimate, made even more difficult by the fact that the production of these numbers is a political act itself. The theoretical framework with its emphasis on the structural and productive power of finance is an important addition to the focus on cognitive and regulatory capture in the political science literature. As the author well shows, close contact between financial elites and regulators is the rule, but does not explain the prevalence of cognitive or regulatory capture.

Her results actually indicate that at least in the times of crisis, having close contacts with the financial elite can be tremendously advantageous to governments (shown positively in the case of France and negatively in the case of Ireland). As Woll emphasizes, the rescue plan by the Irish government was based on “rather incomplete information” (Woll, 2014, p.154), further cemented by the lack of interaction between the different large players in the Irish banking sector. On the other hand, the close contact between governments and banks in France in conjunction with the administration of funds through the banks themselves solved this problem of information asymmetry (Woll, 2014, p.122).Focusing more on these network structures and how they might facilitate collective action of both banks and governments is an important contribution of the book. A clear take-away lesson for governments then is to seek to foster collective decision making procedures by banks before the crisis, establishing a collective actor before the next crisis comes. Current developments, however, point to growing fragmentation of banking sectors due to diverging business models and different scales of engagement, and different degree of exposure to the path-breaking transnational and global dimension of banking and finance that define the identity of banks. For example, Deutsche Bank is a global bank, with a primary seat in Germany, whereas Commerzbank, the second largest private bank in Germany is a bank with a primary business focus on Germany. This raises the question whether financial sector solidarity, based on a club like network is possibly an achievement of the past which can no longer be achieved in the current juncture of globalization (for a related point regarding the general organization of collective action by capital in Germany, s. Streeck 2010, for the US, s. Mizruchi, 2013).

In addition to these insights, the comparative results of her study show once more that the categories of bank vs market based economies as well as the distinctions of coordinated, open market and liberal economies according to the Varieties of Capitalism are not predictive for the coordination between banks and governments and the size and form of bail-out schemes. This result is in line with recent research in the political science community (Hardie et al. 2013a, 2013b) adding further momentum to the contention in the political science community that these distinctions are not applicable to finance. In contrast, the categories of “networked economies” on the one hand and “statist” or “state-led” economies (Schmidt, 2003) seem to be more promising. These categories would lend themselves to a more in-depth investigation of state capacities, in particular the weakness or strength of personnel employed, as well as the question of legal prerogatives of states. ^[6]

These legal prerogatives are an aspect, while not touched upon, are not in depth analyzed in the book. However, they are important for the range of actions governments can engage in. In an illuminating paragraph in the book, the UK Chancellor of the Exchequer, Allistair Darling points out that his government had much more liberty in dealing with its banks than the US administration (Woll, 2014, p.109). Its legal prerogatives provided the government with the capacity to act much quicker and more decisively than the US. A comparison of this dimension for all cases might bring more clarity regarding the negotiation situation between banks and government, particularly important here is the legal framework to nationalize banks.

Beyond the interaction of banks and governments during the crisis, there are a number of questions remaining that regard pre-crisis developments, which shaped the capacity of governments to act. One of the most pressing ones is why rescue funds that were collectively funded by banks for the case of banking crisis pre-crisis were so small? Was it a perception of the muted probability and limited severity of crises? And why were resolution regimes for large banks not envisioned in most countries before the crisis? International competitiveness concerns (e. g. Moran, 2002; Thiemann, 2014) as well as the productive power of finance shaping the perception of the industry seem to be important variables to answer these questions. In the book, the dimension of productive power of finance is deduced from the stringency of regulatory regimes, which for the purpose at hand is sufficient. However, next analytical steps will require an understanding of the mechanisms which shape the production of this kind of regulation (Huault & Richard, 2012; Carruthers, 2015).

To answer this question, a more fine grained analysis of the sources of productive power of finance is called for, that would allow explaining why in countries like Denmark or France, despite dense inter-elite networks between bankers and politicians, the productive power of finance is less developed there. As Bell has emphasized (Bell, 2012), a better understanding of productive power requires investigating how state actors perceive and relate to certain ideas advanced by finance. The competence of bureaucrats and the capacity of knowledge production about financial sector activity by bureaucratic agencies seem to be important factors in determining such productive power (Mayntz, 2012; Thiemann, 2012a, 2012b). Further avenues of investigation to better understand the productive power of finance should also examine the role of (financial) economists in shaping the perception of the finance industry by government, that is their incorporation in business government relationships (for first suggestions regarding the different integration of economists in this respect in the US, UK and France, s. Fourcade, 2009).

In the end, the book with its focus on intra- and inter-elite coordination between banks and governments provides an important inspiration for further research on government bank relationships, one that does not start immediately with the presumption that such links are necessarily leading to regulatory or cognitive capture. All to the contrary, such relationships might prevent a financial crisis turning into a financial panic and thus might be beneficial. This paradox effect of distance and proximity, best illustrated by comparing the French and the Irish case, is from my perspective the most important thought-provoking finding this book provides that needs to be further explored. Further research into these aspects might allow political scientists and sociologists to distinguish productive relationships between finance and governments that allow coordination in times of crisis from relationships that cement the productive power of finance and lead to a favorable treatment of industry.