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AbstractAvoidance of risk and increasing returns are the two main motivators in finance. Returns are better understood and perhaps more easily regulated than financial risk, which is a complex and slippery concept. Financial risk may be best conceived of as a complementary good, but the nature of this good varies as the size of the investment position scales up. That is, the effects of financial risk may be conceived of as a private good for a small financial actor, but becomes a club good, then a common pool, and occasionally a public good as the impact of the investment position's financial risk spreads to affect more of society. Examining banking history shows us that banks and bankers have offset risk while retaining returns through structuring financial products and investment vehicles as club goods, thereby enabling financial actors to jointly benefit from ownership while harming those outside the club walls. Not surprisingly, this capacity to push risk outside club walls has grown commensurate with the political influence of banks and bankers. Laying out governance strategies and concepts, I suggest that in some circumstances pervasive club good structures in finance may be employed to gather regulation-enhancing information, to better understand the networked nature of financial risk and to craft self-governance structures.

Effective financial policy design should incorporate design principles encouraging financial activity and innovation while discouraging excessive risk-taking, into an inclusive, environmental approach to financial system governance. Examining banking systems in Australia, Brazil, Canada and China — whose financial systems proved more resilient than those in the US and much of Europe in the recent global financial crisis — helps us to uncover design rules which strengthen the financial environment and enhance financial resilience. In effect, policy-makers in these four countries struck an oligopolistic bargain with their domestic top banks. This bargain established national banking boundaries behind which indigenous national banks developed, protected banks from foreign competition and threat of acquisition, and enabled banks to pursue lower risk banking business. In return, banks acted as stewards of their financial environments. This bargain recognized the interlinked, network nature of financial risk and integrated governmental regulation with private actor governance structures.

AbstractThis article introduces a special issue ofBusiness and PoliticsonProperty Rights, Financial Risk, and the Politics of a Networked Global Financial System. We introduce aspects of the articles in the issue and situate them within existing literatures in financial economics, public policy, political economy, regulation and governance, and network science. We do this through examining four key contributions in the special issue. First, we show that common conceptualizations of property rights in financial markets ignore the multidimensional nature of financial goods; examples of all goods types can be found in modern finance, and this fact has important implications for the politics and regulation of these markets. Second, we argue that models of financial actors as independent, atomistic agents neglect the relational nature of financial markets, and argue that theory and methodology from network science, financial economics and political economy provide useful ways to analyze these interdependent systems. Third, we discuss how the relational nature of risk leads to hierarchical patterns of financial interdependence, which bequeaths substantial amounts of power—within both market and political systems—to those actors that occupy core positions within the structure of interdependence. Fourth, we integrate ideas from papers in this special issue and related literature with concepts from the Ostrom School of political economy to consider how monitoring, self-governance, and polycentric applications might improve financial market governance. This issue's papers thus constitute one of the first combined attempts to bring the Ostrom School into substantive conversation with financial market governance and risk analysis through comparative and international political economy disciplines.