Paper short abstract:

Rather than merely compliant with the new Basel III banking regulation, China voluntarily exceeds the global standard. This paper shows that low adjustment costs, factional politics, and an unusual alignment of domestic interests in the quest for international reputation drive this phenomenon.

Paper long abstract:

As a G-20 member, China is engaged in financial reform since the end of the global financial crisis. A core piece of this reform is Basel III, the new prudential standard issued by the Basel Committee. Rather than merely compliant, China's banking regulation is stricter than the global standard, and it is implemented ahead of the international timetable. Why is China voluntarily subjecting itself to tougher regulatory standards than the rest of the world? This paper shows that low adjustment costs, factional politics, and an unusual alignment of domestic interests in the quest for international reputation drive this phenomenon. The troubled institutional history of China's financial system motivates all relevant stakeholders to seek external validation in order to address a credibility gap abroad, albeit for different reasons. The paper examines the power of reputation as a driver for regulatory positioning in the context of China's integration into international institutions.