who does the state work for?

paecon |  States acting as lenders of last resort in the aftermath of the 2007/2008 financial crisis clearly illustrated the central role that states have in the operations of financial markets. Despite their active roles, however, states continue to be presented as passive actors that dance to the tunes of the financial markets.  This paper, however, takes a close look at how states’ geopolitical concerns influence financial regulation.

States are perceived as serving the interests of their citizens, yet future rescue operations (as lenders of last resort) at the costs of the taxpayers remain a strong possibility in particular, Too Big To Fail (TBTF) banks persist and their leverage ratios have not greatly improved.

To better understand why this is the case, this paper argues that geopolitical concerns influence the triangular relationships between the (democratic) state, the financial sector, and the state’s citizens (and taxpayers) in favour of the financial sector.  Accordingly, the paper argues that we should more explicitly ask ‘what drives states (and politics) in their approaches to finance?