Sovereignty and legitimacy in international banking law

In the United States, as elsewhere around the globe, the prudential regulation of large banks is based on standards promulgated by the Basel Committee on Banking Supervision (BCBS or Basel Committee). In this transnational organization, bank regulators from leading jurisdictions come together to agree to highly detailed and prescriptive standards for large, internationally active banks. National implementations of the Basel rules and standards typically differ from the BCBS standard in only minor ways. For example, U.S. regulators tend to deviate little from what was decided in Basel in the interest of international cooperation. And when the United States does deviate from Basel, it usually does so by “gold-plating.” The legitimacy of this rule-making process recently came under intense scrutiny when U.S. bank regulators proposed controversial regulations intended to complete the post-2008 rule-making package known as Basel 3 in July 2023. The substantive and procedural shortcomings with the proposed Basel 3 (so-called) “endgame” rule have shined a light on long-standing flaws with the legal and democratic legitimacy of the Basel regime. Arguably, the BCBS now encroaches on the sovereignty of its participating member states. This Article critically examines bank prudential rule-making at the Basel Committee and the domestic mechanisms of implementing the Basel rules, thus highlighting the separate but interacting deficiencies in each process. The Article ultimately proposes remedies for enhancing the legitimacy of the prudential regulation of banks in the United States and reconciling the needs of international cooperation in banking law with regulatory sovereignty.