This chapter provides an historical account of why the institutional setting of the BIS has been conducive to the emergence of soft law as a critical tool for managing the global financial system. Soft law developed almost naturally at the BIS as a result of the many technocratic issues it was called on to deal with throughout its long history – be it German reparation payments in the 1930s, the management of the Bretton Woods system of fixed exchange rates in the 1960s or growing financial stability concerns in the 1970s and 1980s and beyond. The Basel I Capital Accord, adopted in 1988, was a political and regulatory watershed in that respect – a non-binding code of conduct agreed by an informal committee of experts (the Basel Committee on Banking Supervision), that was subsequently implemented by national legislation in all the main constituencies. The chapter argues that the relative success of soft law in financial regulation owes a lot to the particular set-up and traditions of the BIS. However, it concludes that in order to be successful in future, soft law – much like the BIS – will have to become ever more inclusive and transparent.

This chapter discusses the contribution of BIS research to the shift in the way financial stability issues have been looked at before and after the great financial crisis of 2007–9. It also considers the policy implications for the post-crisis reforms. The 1997–8 Asian crisis was an important turning point, focusing BIS research on the endogenous causes of financial instability and thus on the resilience and the risks of the financial system as a whole. From the late 1990s, the BIS started advocating a macroprudential approach to financial stability, including the adoption of countercyclical macroprudential policies. These ideas, while being shared by some academics and central banks, were largely ignored in policy circles, including in the Basel Committee on Banking Supervision. The chapter argues that the great financial crisis of 2007–9 catapulted these same ideas to the top of the reform agenda. Work done previously by the BIS and others, i.a. on the issue of countercyclical capital buffers, could be leveraged and find its way on the reform agenda pushed by the Financial Stability Board and the G20. The ‘measured contrarianism‘ of the BIS in this area thus added real value.

This chapter provides an historical account of why the institutional setting of the BIS has been conducive to the emergence of soft law as a critical tool for managing the global financial system. Soft law developed almost naturally at the BIS as a result of the many technocratic issues it was called on to deal with throughout its long history – be it German reparation payments in the 1930s, the management of the Bretton Woods system of fixed exchange rates in the 1960s or growing financial stability concerns in the 1970s and 1980s and beyond. The Basel I Capital Accord, adopted in 1988, was a political and regulatory watershed in that respect – a non-binding code of conduct agreed by an informal committee of experts (the Basel Committee on Banking Supervision), that was subsequently implemented by national legislation in all the main constituencies. The chapter argues that the relative success of soft law in financial regulation owes a lot to the particular set-up and traditions of the BIS. However, it concludes that in order to be successful in future, soft law – much like the BIS – will have to become ever more inclusive and transparent.

The Basel Committee is the quintessential regulatory network. It has accomplished much through its specific and rigorous rules on capital adequacy, and yet those rules are nothing more than soft law, as Basel’s principals reiterate. Much of the change over time that has characterized the way the Basel Committee acts reflects an evolution towards bureaucratic governance, rather than the development of a unique and different form of cross-border governmental oversight.