An Empirical Investigation of The Financialization Convergence Hypothesis (Maxfield Et Al 2017)

Review of International Political Economy
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An empirical investigation of the financialization

convergence hypothesis
Sylvia Maxfield, W. Kindred Winecoff & Kevin L. Young
To cite this article: Sylvia Maxfield, W. Kindred Winecoff & Kevin L. Young (2017): An empirical
investigation of the financialization convergence hypothesis, Review of International Political
Economy, DOI: 10.1080/09692290.2017.1371061
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REVIEW OF INTERNATIONAL POLITICAL ECONOMY, 2017
https://doi.org/10.1080/09692290.2017.1371061
An empirical investigation of the financialization

convergence hypothesis
Sylvia Maxfielda, W. Kindred Winecoffb and Kevin L. Youngc
a
School of Business, Providence College, Providence, RI, USA; bDepartment of Political Science,
Indiana University Bloomington, Bloomington, IN, USA; cDepartment of Political Science, University of
Downloaded by [Australian Catholic University] at 18:48 20 September 2017
Massachusetts Amherst, Amherst, MA, USA
ABSTRACT
Claims of global homogenization towards a singular model of finance capitalism
constitute a “financialization convergence hypothesis” that has not been subject to
systematic empirical scrutiny. Using extensive firm-level data we center on the key
indicator of firm leverage, and reveal that substantial cross-national and cross-firm
variation still persists. We first compare distributions across OECD countries and find
no significant evidence of convergence over time. We then assess whether firms
classified as prudent by a simple leverage threshold comprise a declining share of
total financial assets over time. We find they do not, and that trajectories remain
largely distinct. We do find empirical evidence of financialization convergence in two
specific areas. First, there was convergence within the US and the UK in the years
immediately proceeding the crisis – but not in other countries representative of
stereotypical non-Anglo-American types financial systems, such as Germany and
France. Second, we find convergence within the category of large, transnationally-
active financial firms. Overall our results suggest that while the behavior of the world’s
largest globally active financial institutions is converging irrespective of home
domicile, their activities are not necessarily leading to the general global
homogenization of financial forms and activities implied by the financialization
convergence hypothesis.
KEYWORDS Financialization; global finance; national systems; convergence; financial firms; banking; leverage
Introduction
Political economists frequently associate financialization with an idealized Anglo-
American type of national financial system. Engelen (2008, p. 114) characterizes as
common in the political economy literature an argument that financialization activities
are similar across many different institutional contexts, leading to an ‘ideal-typical con-
ceptualization of a financialized economy which looks surprisingly similar to the pic-
ture of the US.’ Davis and Kim (2015, p. 216) argue that ‘the United States clearly
stands out as the most financialized economy.’ Crouch (2009) refers to an Anglo-Amer-
ican policy regime of debt-funded consumption as the core of corporate and
CONTACT W. Kindred Winecoff wkwineco@indiana.edu

Supplemental data for this article can be accessed at https://doi.org/10.1080/09692290.2017.1371061.
© 2017 Informa UK Limited, trading as Taylor & Francis Group
2 S. MAXFIELD ET AL.
macroeconomic financialization, which he calls ‘privatized Keynesianism.’ According

to this view, the Anglo-American model is steadily taking over the world through a
process whereby market globalization erodes national heterogeneity and creates a
homogenous global financial modality (Dore, 2008). There is an expectation that we
are moving globally to a new universal ‘regime of financialized accumulation’ (Tabb,
2012, p. 13) in the Anglo-American image. The salient feature of the Anglo-American
ideal type is the pursuit of financial profit, even at the expense of growth in the real
economy or of financial stability.
A contrasting view, associated with the varieties of capitalism and economic geogra-
phy literatures, warns against branding financialization ‘… with convergence towards
an ideal typical Anglo-American brand of capitalism’ (Lee, Clark, Pollar, & Leyshon,
2009, p. 26). The argument of ‘convergence… runs against many geographers presump-
tion in favor of path dependence and differentiation’ (Clark, 2005, p. 5). The problem,
for these scholars, is that ‘the financialization literature is specific when it comes to
Anglo-American economies but too generic about processes unfolding elsewhere’
(Engelen & Konings, 2010, p. 57). Even in the case of Anglo-American countries, Har-
die and Maxfield (2013) suggest, there are different variants of financialization. Others,
such as Christophers (2012), regard the effort to understand financialization operating
at any national level as misleading, given the globalized nature of firms and of financial
flows.
Thus, there are two general arguments regarding processes of financialization in
open economies. The first expects financialization to lead to cross-national convergence
toward an Anglo-American model of finance capitalism. The second anticipates the
persistence of a variety of locally unique niches where financial actors behave differ-
ently within different geographies or ‘habitats’ (Winecoff, 2017; Oatley, Winecoff, Pen-
nock, & Danzman, 2013). We propose a conceptual framework that is capable of
quantitatively evaluating the extent to which financial sectors are converging toward
‘imprudent’ behaviors consistent with theoretical expectations from theories of financi-
alization. A key piece of this framework is that the phenomenon of market-based bank-
ing (Hardie, Howarth, Maxfield, & Verdun, 2013) is associated with, and may even be
construed as an articulating function between, the macroeconomic, household and cor-
porate instantiations of financialization. We use extensive company-level data to
explore what we characterize as the ‘financialization convergence hypothesis’: the pro-
cesses of globalization leading national financial systems to accept key features of the
Anglo-American liberal market economy archetype, including a shift to market-based
banking (Hardie et al., 2013).
We address the convergence hypothesis quantitatively by focusing on the role of
leverage in the financial sector. Leverage is an important indicator of market-based
banking, leverage is important and relatively easy to observe. Activities associated with
market-based banking are, explicitly or implicitly, part of the depiction of financializa-
tion across many different branches of the literature. We quantitatively assess the
extent of leverage convergence within subsets of the global financial system – ‘conver-
gence clubs’ – that are comparable across countries and time. Our findings suggest that
convergence towards a more highly-leveraged financialized economy typical of market-
based banking is occurring among the subset of large, transnationally-active financial
institutions, but that otherwise, national financial systems retain substantial local varia-
tion. In our analyses, the financial convergence hypotheses meets a relatively weak or
‘most likely’ test (Eckstein, 1975). Finding no or little convergence in certain areas of
REVIEW OF INTERNATIONAL POLITICAL ECONOMY 3
the worlds’ transnational and national financial systems does not disprove the financial
convergence hypothesis. It leaves open several other possibilities including future con-
vergence, convergence processes not evident thorugh the indicators we observe or even
accelerated divergence between local financial systems. Nonetheless, our large-N quan-
titative exercise offers a unique contribution to the debate over financial convergence
and models how such an approach can be used in studies of the political economy of
finance.
The spectre of Anglo-Americanization and financial leverage as its

structural barometer
Financial economists have carefully examined cross-national changes in bank practices

and their impact upon national financial systems (Hackethal, 2001; Levine, 2002; Rajan
& Zingales, 2003). But financial economists have a relatively narrow focus on how
banking systems are changing, while political economists’ scope is far broader, seeking
to understand, for example, the extent of banks’ politico-economic ‘coordinating func-
tion’ and how it may inject ‘patience’ into capitalist market systems, particularly the
prototypical coordinated market economies (CMEs) of Western Europe (Bathelt &
Gertler, 2005; Belfrage, in press; Culpepper, 2005; Grittersova, 2014; Vitols, 1998;
Zysman, 1983).
Engelen and Konings (2010, p. 609) write that:
financialization theorists… tend to agree in viewing financialization as a generalized trend, to be
found in most Western national political economies. [They] support the modernist thesis of
institutional convergence: in a context of the rise of financial markets, the creation of new finan-
cial products, and the appearance of new border-crossing financial agents, the relevance of
national institutional differences is supposed to be declining.
Deeg (2010, p. ii) similarly contends that ‘simple typologies of national financial sys-
tems are increasingly difficult to sustain in the light of common trends toward the
increased financialization and internationalization of finance.’ But recent attempts to
measure the historical growth of finance point to complex results whereby trajectories
are strongly differentiated by country (Philippon & Reshef, 2013; Verdier, 2002).
Thus, the extent to which financialization processes are generating convergence,
whether to an Anglo-American ideal or some other point, remains an open question.
With a few exceptions – e.g. Engelen, Konings, and Fernandez (2008), Gourevitch and
Shinn (2007) and Verdier (2002) – the political economy literature on convergence of
financial markets and institutions is usually analyzed through in-depth country case
studies (Clift, 2007; Culpepper, 2005; Deeg, 1999; Deeg, 2010; Schmidt, 2002; Vitols,
2004; Wood & Lane, 2011) or structured case comparisons (Grabel, 1997; Hardie &
Howarth, 2009; Hardie et al., 2013; Howarth & Quaglia, 2013; Kastner, 2014; Pollin,
1995). These largely qualitative studies help researchers hypothesize about and specify
causal pathways and scope conditions for change. But there is much less quantitative
research testing for the extent of convergence. Most of very few cross-national quantita-
tive analyses of the extent of convergence in the political economy literature focus on
convergence/divergence in mechanisms of corporate governance (Engelen et al., 2008;
Gourevitch & Shinn, 2007). Another rare quantitative effort, by Verdier (2002), does
not test for the extent of global convergence or divergence, but instead assesses support
for a casual argument that centralization or decentralization of national political
systems explains the difference between financial systems in Britain, France, Germany
and the United States.
One challenge in devising a quantitative approach is the literature’s variety and
breadth in conceptualizing financialization. The commonality (as Epstein conceptual-
izes it) is a process that grants an increasing role to financial motives, financial markets,
financial actors and financial institutions in the operation of the domestic and interna-
tional economies (Epstein, 2005, p. 3). A number of excellent surveys (Engelen, 2008;
Montgomerie & Williams, 2009; van der Zwan, 2014; Van Treeck, 2009) have emerged
since Dore’s (2008, p. 1097) despairing comment that ‘“financialization” is a bit like
“globalization”—a convenient word for a bundle of more or less discrete structural
changes in the economies of the industrialized world’. Van der Zwan helpfully outlines
three distinct strands of the literature focused, respectively, on the financial activities of
non-financial corporations (Crotty, 2003; Faroohar, 2016; Froud, Sukhdev, Leaver, &
Williams, 2006, Lazonick, 2012), debt-driven household consumption (Fine, 2012, Flig-
stein & Goldstein, 2015; Langley, 2008), and the macropolitical and macroeconomic
‘regime of accumulation’ (Krippner, 2005; Stockhammer, 2004; Young, 2015; Oatley &
Petrova, 2017; Tomaskovic-Devey & Lin, 2011). Measures identified in the literature
and associated with these different approaches to financialization include shares of
profits of non-financial corporations stemming from financial activities; money paid to
the financial sector by non-financial corporations in the form of share buybacks or divi-
dends; consumer or household debt levels; share of financial sector value-added or
assets relative to GDP or growth rates of those relative to others. Others have tried to
capture macrofinancialization trends in other ways. For example, Flaherty (2015) meas-
ures the finance, insurance and real estate sector’s gross operating surplus, as a percent-
age of the operating surplus of all other sectors, while for D€ unhaupt (2017),
financialization is calculated as non-financial corporations’ net interest payments as a
share of capital stock.
Many of the activities associated with financialization are linked to ‘market-based
banking’. Indeed, the emergence of market-based banking appears to be a necessary, if
not sufficient, condition for extensive financialization. We adopt the definition of
market-based banking as banking in which the central activity of loan-making is done
with the intention of selling the loans to the market and where purchase of those loans
is partially financed through ‘wholesale’ borrowing (Hardie et al., 2013). Market-based
banking facilitates the trends emphasized in the different strands of the financialization
literature. At the household/consumer level emphasized by Langely (2008) and Fine
(2012), a typical aspect of market-based banking, securitization of consumption lend-
ing, is a key contributor to the rise of household and consumer debt levels they use a
measure of financialization. Market-based banking is critical to both the debt-financed
boom of share buy-backs and other financial activities of non-financial firms such as
hedging and options trading emphasized by Faroorhar (2016) and others who focus on
financialization in the activities of non-financial corporations. A typical transaction for
publicly traded companies is Dunkin Donuts 2015 $2.6 billion securitized debt facility
placement, used in part to fund share buybacks.
Market-based banking shapes accumulation or macroeconomic growth in poten-
tially many ways. Kroszner, Laeven, and Klingebiel (2007) show how credit-dependent
sectors grow faster in normal times and are hit harder in tough times, while Ivashina
and Scharfstein (2009) show that banks with higher customer deposits – i.e. those with
a less market-based business model – cut lending less than those with lower customer
deposits during the 2008 financial crisis.1 Thus, if there is convergence toward market-
based systems, this evolution may also entail other substantial changes to the macro-
economy. Grabel (1997) shows how attributes of the Anglo-American-type financial
system promote high-risk, short-term speculative activities that detract from the effi-
cient intermediation of savings to investment defined in the Keynesian sense of enter-
prise (as opposed to speculation) (Grabel, 1997, p. 252.) In sum, market-based banking
is implicated in the causal stories about financialization whether focused at the house-
hold/consumer, non-financial corporation and/or macroeconomic levels.
Suggesting that market-based banking is a locus of financialization activity provides
an avenue for quantitative research of the financializational convergence hypothesis. It
does not, however, lead clearly to a particular indicator because market-based banking
is a multi-faceted phenomenon. Hardie et al. (2013) summarize it as involving market-
based asset growth (short-term loans, for example, or assets subject to market-to-
market accounting), market-based liabilities (wholesale funding relative to deposits)
and parallel (or shadow) banking. They note, ‘there is no single way to measure varia-
tion in exposure to the market’ (Hardie et al., 2013, p. 717).
Banks operating in highly financialized, market-based systems have powerful incen-
tives to leverage their equity in order to increase the assets under their control. They
plan for increased leverage and subject themselves to the risk of market-price-induced
hikes in leverage through the mark-to-market system. Leverage is not only fundamental
to financial intermediation – since essentially all lenders are also borrowers – but is per-
haps the single most important feature of financial economies. Assets acquired without
using equity are acquired via debt. The Modigliani–Miller capital irrelevance principle
suggests that, under strong limit conditions, firms should be impartial between funding
asset acquisition via debt or equity, but in real-world political economies, the servicing
costs of debt may often be deducted from tax. Thus, debt funding is often cheaper than
equity funding, and firms can increase their return on equity by increasing the propor-
tion of their asset acquisition that is funded via debt (Winecoff, 2014, 2017). Too much
debt can, of course, jeopardize the financial health of a firm. In market-based banking,
financial institutions use wholesale funding at many times collateral to buy assets that
are increasingly subject to market-to-market valuation.
Indeed, increasing leverage – that is, increasing indebtedness – in the financial sys-
tem has become a source of major concern among national and global regulators, par-
ticularly in the post-crisis period. A minimum leverage ratio was included in the post-
subprime crisis revision to the global Basel capital accords for the first time, while some
national regulators (in particular, those in the United Kingdom and United States)
placed even greater burdens on banks operating within their borders.2
Bank leverage is consistently associated with financialization in a variety of litera-
tures (e.g. Posner, 2015; Solimano, 2016; Tabb, 2012, pp. 1–24). Leverage is absolutely
central to the existence of financial bubbles, crises and to financial ecosystems that are
conducive to short-term risk-taking (see Admati, 2015; Admati & Hellwig, 2013). In its
simplest formulation, a firm’s leverage can be described by its equity as a proportion of
its assets: Equity
Assets . While other measures are sometimes used – the Basel rules include their
own definition of equity as ‘tier 1’ capital, for example, and have a fairly complex
scheme to calculate the exposure to assets – at its root a simple measure of leverage
describes how much of a decline in the value of an asset portfolio can be absorbed
before a bank is rendered insolvent.3 Prior to the global financial crisis, many important
banks had equity worth only 1%–3% of their assets, so even a small decline in the value
of their assets was sufficient to deplete their capital base (Sarin & Summers, 2016). For
example, a 1% decline in asset values is sufficient to destroy one-third of the equity of a
firm with a leverage ratio of 3%. Financial crises occur when the equity of numerous
banks is eroded simultaneously, which generates deadweight losses that must be borne
by society, so high leverage represents a societal risk.
Thus, there is a strong social welfare case for leverage to be regulated fairly strictly
(Admati, 2014). Yet leverage rules have arguably lagged behind market-based banking
methods. Financial firms use markets to increase leverage, which allows them to expand
their asset portfolios but could leave them susceptible to risks even if these assets are
perceived to be safe. For example, the Basel III minimum leverage ratio is only 3%, has
a diluted understanding of bank equity, and is being phased in over a long period of
time. Since it revised its regulatory rules following the subprime crisis, the United States
has mandated 5% equity against assets for bank-holding corporations, 6% for deposi-
tory institutions insured by the FDIC and 8% for systemically important financial insti-
tutions. The US mandate was broadly in line with Andrew Haldane’s suggestion that
leverage requirements around 5% would not reduce financial activity enough to harm
economic growth (Haldane, 2011).
The appropriate level of bank leverage cannot be defined scientifically; there is
no ‘perfect’ number that will maximize economic growth while minimizing social
risk. But financial firms that leverage their equity less are more likely to remain
stable, while those with greater leverage will capture greater assets and may cap-
ture more market share. Thus, there is an implied tension between stability and
profit that is exacerbated in market-based systems; this tension is reflected in regu-
latory politics involving the confidence–competitiveness tradeoff (Singer, 2004,
2007). Leverage is at the core of this tradeoff between profit and stability and mar-
ket-based banking accentuates the stakes.4
We focus on leverage because it is a key component of market-based banking. It is
simple, intuitive and broadly comparable across countries and time. Data for leverage
are relatively complete in the Bureau van Dijk BankScope database. Due to its social
welfare implications, it has been a primary focus of post-crisis regulatory politics.
Leverage can be observed at the level of individual financial firms and across different
types of financial firms. Leverage can also be measured at the level of a financial subsys-
tem – at the level of a given country, group of countries or class of firms. Other meas-
ures could capture different aspects of market-based banking such as changes to the
liabilities side of the balance sheet or measures of profitability; a full exploration of
these indicators is well beyond the scope of this paper, and we believe looking at lever-
age is a reasonable place to begin.
Because it is implicated in many of the different conceptualizations of financializa-
tion in the literature, ranging from debt-driven household consumption, to non-finan-
cial corporation financialization and the role of finance at the level of the national
economy or national regimes of accumulation, our approach looks at the financializa-
tion convergence debate through the lens of financial firms and the theory of market-
based banking. This frames the central expectation of this paper: if the financialization
convergence hypothesis is true, then we should observe financial firms increasing lever-
age similarly across time and space.
Testing for convergence among relevant financial clubs

We use firm-level data to examine whether global finance is converging to a stylized
financialized state. To this point, such disaggregated data have rarely been brought to
bear on questions raised in the financialization and varieties of capitalism literatures.
By devising different conceptualizations and tests for convergence, we provide an
extensive empirical assessment of the financialization convergence hypothesis in the
case of the financial sectors of several key economies. Our central data source is the
Bureau van Dijk BankScope database, which collects information on the more than
32,000 financial firms globally and is a trusted repository of financial firm-level data for
market-based research as well as econometric studies of firm behavior in the financial
sector.5 Our data are extensive and quality-controlled, covering the years 1999–2013
for eight different broad categories of financial firms: bank holding and holding compa-
nies, commercial banks, finance companies (such as credit card, factoring, and leasing
firms), investment banks, real estate and mortgage banks, savings banks and securities
firms. Table 1 indicates the number of each type of firm in our data, and breaks these
down by the different categories.6 In one follow-on test of convergence, we break out
what we call transnational financial firms, defined as a subset of the firm categories
listed in Table 1 and discussed in more detail later. Table 2 summarizes the number of
distinct firm–year observations across the advanced economies that comprise our sam-
ple. We chose countries for which data quality over time is high and whose relevance
in the global financial system is generally understood to be important: Australia,
Table 1. Number of observations and percentage representation in our sample, by category. A breakdown of
firm-type by country is in Appendix 1.
Category No. of firm–year observations Percentage of firms in sample (%)
Bank holding and holding companies 24,440 11.06
Commercial banks 126,274 57.14
Cooperative banks 31,329 14.18
Finance companies 3658 1.66
Investment banks 3525 1.60
Real estate and mortgage bank 2917 1.32
Savings bank 26,996 12.22
Securities firm 1857 0.84
Table 2. Number of firm–year observations used in analysis, full sample and large firms sample compared.
Country Full sample of firms Large firms sample
Australia 575 56
Belgium 1244 79
France 6087 298
Germany 30,277 292
Iceland 196 18
Ireland 505 48
Italy 6568 152
Japan 10,978 305
The Netherlands 827 71
Spain 1588 94
Sweden 1400 45
Switzerland 5962 300
United Kingdom 4506 328
United States 150,283 13,643
Belgium, France, Germany, Iceland, Ireland, Italy, Japan, the Netherlands, Spain, Swe-
den, Switzerland, United Kingdom and United States. The number of financial firms
operating across different jurisdictions is very different. In particular, the United States
has many more financial firms – in particular, banks – than other countries. This affects
firm size distributions and analytical choices we report later in the paper.7
While there is debate over the value of studying financial capitalism at the subna-
tional, national, and global levels, the political economy literature generally, and in refer-
ence to finance particularly, continues to reference the spectre of national drift toward
Anglo-Americanization (Fichtner, 2014; Wade, 2007; Watson, 2005). Because we want
to assess the extent of cross-national convergence, it is necessary to look at entire distri-
butions of firms, rather than just mean values for a representative firm for each country.
The literature on convergence emphasizes the methodological impact of defining the

‘convergence club’, i.e. the group of units to which the convergence test is applied
(Pl€
umper & Schneider, 2009). The logic of convergence clubs emerges from endoge-
nous economic growth models, which expect global factor price equalization over time
due to diminishing marginal returns to factors of production in combination with tech-
nological diffusion (e.g. Solow, 1956; Swan, 1956). More recent growth models empha-
size higher order processes – agglomeration effects, scale economies and economic
location – that could impede global convergence under some circumstances (e.g. Barro
& Sala-i-Martin, 1997; Grossman & Helpman, 1994; Lucas, 1988; Romer, 1986), yet the
expectation of convergence to multiple equilibria – ‘club’ standards demarcated by
income level or some other factor – often remains. More recent network models also
examine the pathways of endogenous convergence, often linking interdependence in
economic and financial networks to convergence in domestic policies among states that
occupy common network communities via processes of learning, emulation and com-
petition (e.g. Cao, 2012).
Scholars have applied the causal logic of convergence within certain groups or clubs
to generalized aspects of financial development (Apergis, Christou, & Miller, 2012), but
none have yet examined convergence in particular types of financial activity by specific
types of financial actors as we do. Our goal is to determine whether the financialization
convergence hypothesis is evident in some of the world’s most highly developed capital
markets. For this reason, based on the existing literature, we distinguish several differ-
ent conceptualizations of convergence and hypothesize different relevant convergence
clubs. Table 3 outlines three specific conceptualizations of convergence toward a highly
Table 3. Types of convergence to a highly financialized model and corresponding tests.

Conceptualization of convergence Definition of Sigma convergence Measure of
convergence club tests convergence
At the national level, does the National aggregation Kolmogorov–Smirnov Distributional similarity
distribution of financial firm of all financial firms. test for distributional of firm leverage
activities look increasingly similarity. within countries
similar? across time.
Are prudent firms in CME nations Prudent firms defined Decrease over time in Proportion of assets
engaging in more risky activity as having leverage number of prudent controlled by
(associated with market-based ratios above 5%. firms, and their prudent firms.
banking) over time? control of assets.
Are similar transnational firms Top 10% of firms in Kolmogorov–Smirnov Distributional similarity
behaving more similarly? each country test for distributional of firm leverage
(chosen by assets similarity. within countries
under control). across time.
financialized growth model and associated ways to test for homogenization of financial
behavior.
We triangulate in our approach for several reasons. First, despite a growing body of
work on the political economy of market-based banking, the theoretical financialization
literature has not yet generated specific expectations regarding the behavior of financial
firms in comparative advanced economies. The literature suggests a variety of ways in
which individuals, families, business and public sectors have become increasingly finan-
cialized over time. Whenever this occurs, the balance sheets of financial firms operating
within these jurisdictions should reflect these activities. That is, if households or corpora-
tions are taking on greater financial liabilities, then this will appear on the asset side of
banks’ balance sheets. And if household or corporate activities have become more (or
less) asset-driven, this will be evident on the liabilities side of bank’s balance sheets.
Thus, if similar processes of financialization are occurring in multiple economies, we
should observe this on the balance sheets of the financial institutions in those countries.8
Second, financialization within the financial sector may take multiple forms: it could
manifest as increasing risk-acceptance among previously prudent actors – particularly
in traditional coordinated-market economies characterized as having high levels of
patient capital activity; even greater risk-acceptance in market-based Anglo-American
systems; higher levels of risk-acceptance regardless of institutional type or environ-
ment; or a decline in traditional ‘vanilla’ banking intermediation between household
savers and business borrowers.
Recent literature has emphasized the differences between two types of convergence:
sigma (s) and beta (b) (Pl€ umper & Schneider, 2009). The former focuses on conver-
gence in variance and typically employs descriptive methods, while the latter uses
regression models to estimate trends in the central tendency of an outcome across space
and/or time. In this paper, we primarily employ descriptive methods on a very large
data-set of individual firms to examine changes in both the central tendency and the
variance. While we focus empirically on central tendency comparisons, we also present
data visualizations showing mean/median trends over time.9 While we believe that fur-
ther use of inferential models to examine these systems may be necessary in the future,
in this paper, we take the necessary first step of characterizing and describing the
empirical picture, using a macro-lens on quantitative data to show how a large subset
of the world’s financial firms have actually behaved. Table 3 previews our three tests.
Our first test is whether we can detect increasing cross-national similarity across the
distributions of national financial systems of core OECD economies. If convergence
toward a stereotypical Anglo-American model (Crouch, 2009) is occurring, then
increasing cross-national similarity should be apparent over time in the firm distribu-
tions across different financial systems.
Our second test of convergence is whether prudent financial firms in traditional
CMEs engage in riskier activities that are typically associated with Anglo-American
capital markets. To conduct this test, we take four national financial systems that are
often contrasted with one another (Allen & Gale, 2000; Jackson, 2007; Jones, Lande, &
Luder, 2013; Woll, 2014): the United States, United Kingdom, France and Germany.
Based on a simple classification of firm leverage, we assess the fate of more-prudent
financial firms over time: if the financialization convergence hypothesis is true, we
should observe increased risk-taking over time, particularly among CMEs.
Our third test focuses on global competition as a potential force for transnational
convergence by examining whether there is convergence in the behavior of similar
types of financial firms grouped transnationally. We isolate key classes of financial

actors that are likely to be active globally – such as investment banks and firms that
control an enormous share of the world’s financial assets – and compare them to more
typical financial sector firms.
We use these data to examine the behavior of financial sector firms. We are most
interested in determining whether firms that would historically be considered ‘pru-
dent’ – i.e. low-leverage – are behaving more like speculative capital over time. If global
competition is incentivizing financial firms to engage in riskier actions by spreading
their capital too thinly, this is evidence of financialization convergence.
Our approach is not to measure financialization directly, but rather to examine the
extent to which distributions of leverage – an important structural barometer of finan-
cialization at the level of the financial firm – are converging with a representative finan-
cialized model. This allows us to examine country-level differences using firm-level data
and also to inductively find divergent trends. Put differently, our measurements,
described below and expanded in the supplemental appendix, provide a sensitivity to
country-level variation, instead of pooling countries together and looking at general
trends across very institutionally different countries.10
National patterns of financialized bank activity: cross-national

convergence?
To assess cross-national convergence, we use a statistical assessment of whether a given
distribution is significantly different from another distribution, called a Kolmogorov–
Smirnov (KS) test. A KS test is more valid than a common t-test when the distribution
of the data in each set is unknown or when the number of observations in each data-set
is relatively small. The KS statistic is calculated as the distance between the observed
distribution and either a reference distribution (e.g. the standard normal distribution,
or a power law distribution) or a different observed distribution.11 Because KS tests are
non-parametric, they do not require an assumption that the data are sampled from a
Gaussian distribution, which is important in this case because many of the country–
year distributions are non-normal.12
We performed KS tests for distributional similarity of leverage for every country in
our sample, for the years 1999–2013 – i.e. for all years when we have a relatively stable
number of firms in our data. A KS test requires that we have a standard reference distri-
bution. We first chose the United States as the reference distribution, because the
United States is most strongly associated with financialization (Epstein, 2005; Krippner,
2005). Figure 1 reports the results of iterated KS tests for each year for our sample of
countries against the reference distribution of the United States. The graph reports
each country’s p-values as a test of the validity of the null hypothesis of identical distri-
butions. Thus, a low enough p-value to reject the null hypothesis would indicate high
confidence that the distributions of these variables are statistically different.
If convergence were occurring over time, Figure 1 should show an increasing num-
ber of country–years with p-values far away from zero – i.e. higher on the y-axis.
Instead, no clear pattern emerges. Most country–year observations cluster at the very
bottom, meaning that we can reject the null hypothesis that their distributions are the
same with high levels of statistical confidence. In other words, most national financial
systems do not appear to be converging to the US distribution over time. There has
always been quite a lot of diversity in these national financial systems, and that contrast
Figure 1. The results of Kolmogorov–Smirnov tests of distributional similarity for firm leverage with the United
States as the reference distribution.
endures. A notable exception is Italy, which, just shortly before he financial crisis and
afterward, shows signs of distributional similarity with the United States above the 5%
standard threshold of statistical significance. Iceland and, to a lesser extent, Australia
also demonstrate some similarities to the United States, but these are less consistent
and there is less statistical certainty regarding them.
The United States may not be a good reference distribution from which to test cross-
national convergence trends due to the relatively unique diversity of the US financial
system. The United States features a very dense financial system with many small firms
(such as community and regional banks) thickening the financial landscape, while rela-
tively few firms control a substantial amount of the country’s financial assets. While
other countries also have unequally distributed financial systems, the United States is a
notable exception in terms of the extent of this tendency and the sheer number of firms.
Because the United States is such an outlier, a test of distributional similarity with the
United States as a reference distribution may be a tough one for smaller financial sys-
tems to pass (despite the importance of the United States in the financialization litera-
ture). As such the United Kingdom may present a ‘purer’ national example of the
assumed trends in the transformation of financial systems toward elements of an
Anglo-American ideal type. Banks in the United Kingdom also represent a higher share
of assets to national income than countries like the United States, so some (e.g. Culpep-
per & Reinke, 2014; Hardie & Maxfield, 2013) see the United Kingdom as the more
paradigmatic case of a highly financialized economy. Compared with the United States,
in the United Kingdom, bank financing of non-financial firms has grown dramatically
and has become increasingly short term (Hardie & Maxfield, 2013). Consequently, we
ran the same analysis of cross-national convergence as we did above using the United
Kingdom as the reference distribution. Figure 2 reports the results of iterated KS tests
for each year for our sample of countries against the reference distribution of the
United Kingdom.
The comparison to the United Kingdom shows a more complicated picture than for
the United States. Some countries – in particular Belgium, the Netherlands, Ireland and
Figure 2. The results of Kolmogorov–Smirnov tests of distributional similarity for firm leverage, with the United
Kingdom as the reference distribution.
Iceland – are on higher altitudes on the y-axis, indicating they have statistically similar
distributions to the UK standard of financialization, but appear to diverge from the
United Kingdom in the years after the crisis. Other countries, notably Australia and
Italy, which also exhibited convergence to the US standard, appear to become more
similar to the United Kingdom as the 2000s progressed, including continued conver-
gence after the 2007–2009 global financial crisis. Significantly however, a number of
other economies appear to be distributionally dissimilar from the United Kingdom for
all years. These include Switzerland, Germany, France and Japan – all major financial
center jurisdictions.13
These results for convergence or non-convergence to the Anglo-American model
standard set by the United Kingdom raise the possibility that national economic size
may be part of the causal story underpinning convergence because, of the 12 non-bench-
mark countries in our study, the 3 largest by GDP do not exhibit any evidence of conver-
gence. However, among the countries where the evidence hints at the possible green
shoots of convergence, there are a mix of larger countries including Italy, as well as
smaller ones such as the Netherlands, and others such as Australia that might be consid-
ered large or small depending on numeric definition of thresholds. While our purpose is
not to uncover causes of convergence or non-convergence, results of the second statistical
test, described in the next section, reinforce the conclusion of non-convergence in larger
economies. We return to the implications and discussion of causality in the conclusion.
The fate of prudent firms in coordinated market economies

While distributional convergence of macrofinancial systems is partially apparent
among a small grouping of economies, it is possible that sigma convergence trends
have been occurring at a more microlevel – at the level of the financial firm. We thus
investigate in this section whether there is convergence in terms of the trends of firm-
level characteristics.
We assess leverage trends by utilizing firm-level data that helps to paint a broad pic-
ture of the extent of convergence over time. We situate our analysis of firm-level con-
vergence at the level of four different national financial systems that are often
understood to have contrasting models of advanced financial capitalism: France, Ger-
many, the United Kingdom and the United States. We use these countries because they
have large and deep financial systems that are often compared for scholarly and policy
purposes (Allen & Gale, 2000; Jackson, 2007; Jones et al., 2013; Woll, 2014). These four
countries sit at the heart of the debate over financialization because Germany and
France are typically contrasted with the United Kingdom and the United States in the
varieties of financial capitalism literature (Hardie & Howarth, 2013). In this literature,
Germany and France exemplify national jurisdictions likely to experience less financial-
ization than the Anglo-American systems.

Our analysis in this section is centered on a simple threshold that defines a selection
of lower leverage ‘prudent’ financial firms. Specifically, we use information on firm
leverage in the following way. To categorize firms as prudent we utilize the threshold of
a 5% leverage ratio, which is the minimum amount of equity firms must hold against
their assets under the Dodd–Frank rules instituted by the United States following the
subprime crisis.14 This cut-off holds up to tests of sensitivity to other possible cut-offs
(see Figure 4(a–d)). The Basel III mandated level is lower, and there were no consistent
leverage rules prior to the global financial crisis, so by using this ratio, we can isolate
firms that behave prudently (as contemporarily defined by one of the most important
global regulators) even when they were not formally required to do so. That is, we can
track firms that were intentionally behaving prudently across time.
We first select all financial firms that are above the 5% leverage ratio threshold in
1999. This year is chosen as a cut-off for two simple reasons. First, there is significantly
more data available within BankScope post-1999. Second, 1999 was the year of major
changes in financial architectures around the world. The Basel Committee began its
first major update of the 1988 Accord, which ignited a series of regulatory changes in
each of the main countries in our sample. In addition, national regulatory changes
were initiated within the world’s largest financial jurisdiction – the United States – that
had major consequences for how global banking performed. Specifically, the Financial
Modernization Act (otherwise known as the Gramm–Leach–Bliley Act) was passed in
1999; it repealed significant parts of the Glass–Steagall Act of 1933 that had forced a
separation between banking, securities and insurance operations within financial insti-
tutions operating in the United States. This dismantled the ring–fence separating com-
mercial and investment banking, and set financial firms on a different regulatory
trajectory. While this was a US policy move, it had unambiguously global consequen-
ces, which makes 1999 a good starting year for our analysis.
We begin by selecting all prudent firms in 1999 using the simple leverage definition
described above. Selecting only those firms that were prudent in 1999 allows us to track
what happens to their leverage over time. Figure 3 shows the distribution of firm lever-
age of these firms from 1999 to 2013. The graphic on the left shows the boxplot distri-
bution (excluding outside values) over time. The graphic on the right is a transparency
plot that shows the bulk movement of the same group of firms over time. As the relative
stability in these distributions illustrates, these firms did not become significantly
more leveraged over time – prudent financial firms in 1999 largely remained prudent
firms. If anything, the trajectory over time is slightly upward – meaning that firms
increased their equity relative to assets. The transparency plot shows a number of firms
Figure 3. Boxplot distribution of firm leverage, 1999–2013 (left) (excludes outside values). Transparency plot
showing same group of firms’ leverage over time (right). More descriptive data are reported in the supplemental
appendix.
increasing their leverage (i.e. moving down in terms of equity to assets) following 2008.
However, the vast majority of firms move slightly upward during the same period,
decreasing their leverage.
Tracking only prudent financial firms risks distorting the picture, however, because
the actual number of prudent firms over time is changing. The maximum number of
firms in the distributions described above is in 1999, when there are 11,398 firms in the
total sample. The majority (89%) of these firms are from the United States, given the
large number of banks in that country. In 1999, there were also 263 prudent firms in
France, 813 in Germany and 217 in the United Kingdom.
Thus the next step is to examine what happens over time to the number of firms that
can be classified as prudent in a given year. In other words, in Figure 4, we allow firms
that are classified as prudent to move in and out of the sample over time, whereas in
Figure 3, the sample was fixed to those firms that were prudent in 1999. Doing so leads
to a more systemic and dynamic picture of what is happening at the level of the
national financial system.
To achieve this more complete view of trends, we first took simple counts of firms
that cross the three leverage thresholds – 5%, 7% and 10% – for each country–year. If
we express these counts of firms as a percentage of all firms in that country for a given
year, we risk distorting actual systemic trends. That is because many prudent firms are
small and represent a very small proportion of total assets in the financial system at a
given point in time. To address this, we weighted each firm classified as prudent in pro-
portion to all firms’ assets in that year to assess the trajectory of a national financial sys-
tem’s assets over time: are assets under control of the more prudent firms, or the more
speculative firms? Thus the number of prudent firms is adjusted to the relative size and
importance of these firms in the national economy. Figure 4 illustrates this weighted
measure over time.
For countries such as Germany and France, the trajectory of prudent firms share of
assets is actually upward.15 For the United Kingdom and the United States, the situa-
tion is different. In the United States, the asset share of prudent firms in the economy
fell before the crisis, but then rose after. The United Kingdom has a curvilinear trend
from a much lower base level of prudence. Prudent firms’ asset share in the United
Figure 4. (a–d) Proportion of prudent firms relative to all available firms, weighted by total assets, 1999–2013.
There are very different patterns across four major economies associated with archetypes in the varieties of capi-
talism literature: France, Germany, the United Kingdom and the United States.
Kingdom declined to negligible levels prior to the crisis, and afterward recovered to the
levels they were at in the early 2000s.
In general, there is no clear trend of universal convergence in these data over the
observed period. The United States has had the greatest proportion of its assets con-
trolled by relatively prudent firms across the entire timeframe, while highly levered
European financial firms have tended to control most assets. Notably, this proportion
fell substantially in the United States – by nearly one-quarter – in the run-up to the
subprime crisis, but today more assets are controlled by less-leveraged financial firms
than at any point in the post-Glass Steagall era. As measured by prudent firms’ share of
assets, France and Germany also de-levered following the financial crisis, the latter in
particular, although both have also since fallen back a bit. The largest movements were
in the United Kingdom, where the proportion of assets controlled by prudent firms
(using the 5% cut-off) went from Franco-German levels early in the 2000s to below
10% immediately before the crisis. Like the others, the UK financial sector responded
to the crisis by reducing leverage (at least among the large asset holders), but in recent
years has begun a similar-looking cycle; if this trend continues it should worry British
regulators.
Still, there is little evidence supporting the financialization convergence hypothesis

to be found using these indicators. National financial systems retain important differ-
ences, and if anything, these financial sectors are more prudent in the post-crisis era.
But the logic of convergence through globalization suggests that integration of financial
markets internationally forces especially the largest financial firms to compete in a
global market (Murray & Scott, 2012; Tabb, 2012). Through this global competition,
these firms become carriers of homogenization. Thus, we turn now to another way to
try uncover a process of convergence in the experience of financializations: examine
the subset of large firms that are most likely to be active transnationally, or at least face
direct competition from those who are.
Convergence in transnational groups of comparable financial firms

The evidence in the previous sections suggests that convergence to an Anglo-Ameri-
can-type financial system has either not occurred or has been partial. Heterogeneity
persists in the nature of national financial systems, even when we disaggregate types of
financial firms within national financial systems and hone in on some of the largest
and most advanced economies. These results suggest skepticism about the financializa-
tion convergence hypothesis.
In this section, we explore another level at which convergence may be occurring.
While the previous two sections assessed distributional similarity in national financial
systems and then moved to national aggregates of firm-level data, both of these analyses
encompass a wide diversity of financial firms, from large bank holding companies to
savings banks to investment banks. We explore in this section what convergence might
look like ‘at the top’ – among large transnationally active financial firms such as invest-
ment banks, bank holding companies, securities firms and commercial banks.
A substantial literature motivates this particular focus. A significant strand of the
financialization literature depicts large investment banks, in particular, as global agents
of neoliberalism (Hager, 2012; Ho, 2005; Leyshon & Thrift, 1997). To be the carriers of
cross-national homogenization around a liberal market modality of finance, attributes
of this club of financial institutions should be converging, irrespective of nationality.
To assess the empirical evidence for this manifestation of the financialization conver-
gence hypothesis, we analyze convergence in attributes of the largest, most globally
competitive financial firms, irrespective of their national origin, and compare these to
other categories of firms that are likely to be more congenial to prudent activity. The
‘transnational’ scope of this analysis is consistent with views of financialization as a
phenomenon that is not easily situated within borders, given the mobility of finance
capital in the contemporary period (see Christophers, 2012).
The Bureau Van Dijk BankScope data for individual financial firms allow us to test
for convergence among this transnational class by grouping firms according to stan-
dard legal classifications of different types of financial institutions. If the weakening of
restrictions on cross-border capital movements has increased the competitive pressures
that globally active firms experience (such as investment banks and the largest banks
by total assets), then convergence in investment behaviors should be most evident for
that subset. For firms that are more locally nested and which tend to operate in a more
prudent way (such as small savings and cooperative banks), we would expect conver-
gence only if financialization pressures reach these firms.
We examine this hypothesis using the same indicator used in the other empirical
tests described above: leverage, operationalized as a simple Equity:Assets ratio. Instead
of taking the sample of all available firms, we took the largest, most transnational finan-
cial firms, in the following way. First, we excluded all savings banks, mortgage banks
and community banks, given that these kinds of firms are not typically associated with
global competition and transnational market activity. The vast majority of these firms
are thoroughly nested within their local – sometimes very local – economic environ-
ments, and do not represent the class of firms such as large investment banks depicted
in the financial globalization literature (French, Leyshon, & Wainwright, 2011; Hager,
2012; Leyshon & Thrift, 1997).
Our sample thus includes only those financial firms that could have a substantial
transnational presence. These include investment banks, bank holding companies,

securities firms and large commercial banks. To isolate the largest among these firms,
we took the largest top 10% by cumulative distribution of assets in a given country for
a given year. This is superior to measures such as ‘the top 5’ within a given country
because, for some countries, there are very few banks that are truly large and transna-
tional. Taking the top 10% of firms by assets thus entails getting a more accurate sense
of peak transnational capital firms likely to be globally competitive.
To assess cross-national convergence, we use the same statistical test that we used
before, the KS test of distributional similarity. We also used the same series of time for
comparative purposes (though data quality is generally better for these large transna-
tional financial firms than for other sets of firms). A KS test is particularly useful when
we have smaller, more selective number of country–year observations as is the case
when we reduce the number of available firms to large transnationally active firms.
Because of the size restrictions however, we chose to use the United Kingdom as the
reference distribution. Countries such as Germany, France and Switzerland have fewer
than 20 firms in this category for most years, and countries like Sweden have only 3–4
for most years. The United States, on the other hand, has between 1000 and 7000 firms
for a given year. Figure 5 reports the frequency-based histogram of firms by their (natu-
ral logged) total asset size, for two potential samples of firms. The first (on the left)
includes US firms in the sample. The second (on the right) excludes US firms.
Given the difference in the number of large transnational financial firms in these two
different samples, we chose not to use the United States as the reference distribution.
Even aside from substantive reasons to select the United Kingdom as the reference dis-
tribution mentioned above, it is better to include it because it has a similar number of
observations per year as the other countries in the sample. Figure 6 reports the results
of iterated KS tests for each year for our sample of countries against the reference distri-
bution of the United Kingdom.16
These results suggest significantly more distributional similarity among this class of
large transnational firms than we have found in testing for convergence at the level of
the macrofinancial system or national aggregations of prudent firms. Recall that our
iterative KS test results reported in the graphs show each country’s p-values as a test of
the validity of the null hypothesis of identical distributions. Thus, a low enough p-value
to reject the null hypothesis would indicate high confidence that the distributions of
these variables are statistically different. The majority of the firms in this distribution
are above the 10% p-value, and many are above the 5% level. There are very few firms
in Figure 6 which are very close to the 0% p-value mark. This statistical result means
that we cannot reject the null hypothesis of convergence. In other words, convergence
Figure 5. Frequency-based histogram distributions for financial firms in entire sample, both including (top) and
excluding the United States (bottom). The smaller humps represent the firms selected within that sample that are
in top percentages of the size distribution. The natural log is used on the y-axis. The United States is a major out-
lier: the entire distribution changes when the United States is not included in the sample. Similar plots for the dis-
tributions of leverage are available in the supplemental appendix.
Figure 6. The results of Kolmogorov–Smirnov tests of distributional similarity for firm leverage for the largest 10%
of firms (cumulative distribution), with the United Kingdom as the reference distribution.
is evident for the subset of firms in each nation whose dominant business model
requires competing in the global market.
Conclusion
We have devised a way to conceptualize the extent of convergence to an Anglo-Ameri-
can model of financialization that is amenable to rigorous empirical analysis based on
one of the most comprehensive existing repositories of data about financial sector
firms. By focusing on leverage, we have been able to test for convergence trends that
are a component of financialization in widely different theoretical depictions and defi-
nitions of financialization. We find clear evidence of convergence pressures at the level
of large globally engaged firms, but not much in the characteristics of other types of
firms.
Our methodology has several general implications. It brings out an important point
often obscured in the financialization debate, and in older debates about globalization
and the welfare state.17 This is the observation that certain national characteristics
might be changing in similar ways in different nations even as diversity persists. All
units in a system may move along a common trajectory, but if they start from different
points, they may diverge. To observe that many national financial systems may be
exhibiting some common circumstances does not mean convergence is occurring.
Our methodology also yields research findings that can help scholars contextualize
conclusions about financialization convergence or divergence drawn from single coun-
try studies. It highlights the impact of using the United States versus the United King-
dom as a benchmark for the Anglo-American financial modality and of constructing
different groups within which to search for convergence. Triangulating across several
different research methods helps the cumulation of knowledge by revealing consistent
findings across a variety of tests or evaluation exercises. Our effort to supplement quali-
tative or quantitative studies based on single countries with the analysis of a large cross-
national data-set illustrates the value of approaching disputed questions in political

economy from a variety of methodological perspectives.
These findings lend credence to arguments about the role of global engagement as a
channel for homogenization, but they also suggest continued room for scholars of the
political economy of finance to research how and why financial system heterogeneity
persists and how it may or may not shape economic circumstances. For example, the
results presented here that suggest a slow persistent convergence toward the UK stan-
dard in Italy and Australia point to the potential for deeper analysis to generate hypoth-
eses about how and why financialization convergence does or does not occur at the sub-
transnational level.
Our finding, across two different statistical tests, that Germany, France and Japan
show little sign of convergence to the Anglo-American model, combined with evidence
of convergence among global financial firms irrespective of national setting raises a
question about the role of economic size as a ‘defense’ against the pressures emanating
from globalized finance. Whether or not economic size is an intermediating factor, the
national trends evident in the data have implications for debates over the power of
states to be a bulwark against the force of global capitalism. While we do not explore
the causes of divergence, our results have implications for future research into the inter-
action of economic size and state actions, including national regulatory practices, in
explaining persistent cross-national heterogeneity in certain contexts and its absence in
others.
We are not alone in claiming diversity continues to exist between national financial
systems and in the role of finance in the macroeconomy. Gourevitch and Shinn (2007)
show that ownership concentration levels in the classic CMEs of continental Europe
have changed relatively little. Iverson and Stephens (2008) argue that financial globali-
zation does not undermine welfare states. Schneider (2008), for example, describes the
enduring importance of patient capital in the groups, conglomerate family business
holdings in Latin America, many of which include bank subsidiaries. Many others
adhere to the view that historical forms will endure even in the face of pressures for
convergence (Amable, 2003; Hay, 2004; Hopner, 2005; Pauly & Reich, 1997; Schmidt,
2003). One reason is the claim of economy-wide institutional complementarities that
create lock-in effects which reinforce divergence over time (Howell, 2003). Our finding
of greater convergence to the United Kingdom than to the United States as a national
financial system illustrating the dominance of traits associated with financialization
also reinforces the call for more nuanced exploration of the role of banks and banking
and their role in the causal processes characteristic of financialization. Relatedly, we
contribute to a recent but growing empirical literature on the differentiated nature of
financialization (see D€ unhaupt, 2017; Flaherty, 2015).
The finding of convergence at the national level among the subset of the national
system comprising the largest firms competing in the global marketplace lends cre-
dence to the idea that the causal engine for convergence lies in the actions of those
firms that compete in the global financial market. This result is consistent with recent
qualitative evidence about the process of financialization as it interacts with national
institutions differently. In the case studies of the historical development of financializa-
tion, the emphasis is on the role of elites in spreading practices within large global firms
in particular. Berghoff (2016, pp. 95–106), for example, shows how the practices of
financialized governance within the German economy in the 1990s were brought forth
from the top, via particular practices and trends brought via corporate elites from the
United States to Germany.
Convergence within financial systems has been surprisingly understudied within IPE
literature, except in descriptive characterizations of institutional features and that of
policy. Overall, our empirical results bear out the widespread notion of global market
competition driving homogenization, but only on a limited scale. In line with economic
geographers and the theories of path dependence in comparative political economy,
this trend is leaving considerable potential for different modalities of finance and finan-
cial relationships in countries and parts of the financial system where it has long
existed. Rather than financial systems as a whole converging, we have a strata of firms –
large transnational bohemeths – with convergent characteristics. For financial firms not
subject to cross-border competition in their business lines, convergence may be a long

time coming.
Notes
1. See also Basel Committee on Banking Supervision (2008, p. 11).
2. A description of the leverage rules in the new global regulatory standard negotiated under the aus-
pices of the Bank for International Settlements’ Basel Committee for Banking Supervision is here.
http://www.bis.org/publ/bcbs270.pdf, accessed 15 April 2017.
3. An introduction to the concept of bank leverage, and its importance for bank stability, can be
found in Admati and Hellwig (2013, Chapters 2 and 3).
4. Most prevailing economic theory does not provide a clear basis for assuming that economic pres-
sures would produce convergence in behaviors associated with financialization, such as increasing
leverage. There are two limitations of dominant economic theory that are important to note. First,
many macroeconomic models assume price-taking open economies, where factor prices are equil-
ibrate across countries and the organization of political economies (e.g. according to CME or
LME priorities) is not a factor. Second, these economies typically produce and trade without
financial markets. Models that include financial actors frequently derive their behaviors within
the tradition of the Modigliani–Miller capital structural irrelevance principle, which relies on rep-
resentative agents and thus assumes little behavioral diversity.
5. For more, see http://www.bvdinfo.com/en-gb/our-products/company-information/international-
products/bankscope, accessed 4 January 2016. As extensive as BankScope is, it is not perfect. In
the case of duplicate firm observations within a given year, due largely to reporting differences
across countries and classes of firms, we included the first reported firm per year for consistency
purposes. Key variables such as equity over total assets are standardized reported variables within
BankScope. Total real assets were calculated on the basis of reported annual exchange rates and
unit levels as reported by BankScope.
6. A further description is found in Appendix 1.
7. It might be tempting to define firms as belonging primarily to market-based or bank-based sys-
tems according to type, but financial institutions could engage in market-based bank behaviors
regardless of the legal classification. Moreover, regulatory differences across jurisdictions might
call into question any ad hoc classification scheme. Thus, we prefer to infer such behaviors from
the balance sheet information in our data.
8. We thank an anonymous reviewer for encouraging us to think along these lines.
9. Appendix 3 contains a further graphical description of temporal trends within the countries in
our sample.
10. Recent quantitative studies of financialization across countries tend to pool trends across coun-
tries, rather than explore them as potentially differentiated systems. For example, Flaherty (2015)
also engages in a pooled sample, controlling for country-level variation but ultimately trying to
find out the general capital/labour bargaining effects of financialization within the OECD for his
14 country sample. Another more recent manifestation of this kind of analysis is D€ unhaupt
(2017), which uses a regression model to estimate how the labour share of income changes as a
result of financialization. Importantly, the analysis uses country-fixed effects in an attempt to
adjust for omitted variable bias given a 13-country sample. We have no quarrel with these studies,
which are important advances. Importantly, these are not studies of convergence but rather are
seeking to estimate a general effect of financialization on wealth distribution, as a general trend
over many countries. Yet the fact that countries can be pooled in such a way suggests the confi-
dence within some existing scholarship that pooling national economic systems is generally
uncontroversial.
11. For more, see Clauset et al. (2009).
12. These distributions are not reported for the sake of brevity, but are available from the authors
upon request.
13. In the Appendix, we replicate this analysis for other indicators of firms’ balance sheets. The results
indicate less distributional similarity.
14. Haldane (2011) also suggested a 5% leverage ratio. We have also looked at higher levels, as Ameri-
can regulatory rules require bank holding corporations to maintain a 6% ratio and systemically
important institutions to have 8% equity against assets. The results are very similar to those
reported here, so we omit them for the sake of brevity. They are available from the authors upon
request.
15. Some of this could be due to riskier firms failing – and thus being driven out of the sample – dur-
ing the global financial crisis.
16. We also ran KS tests against a distribution of US firms, and these results are reported in the
Appendix.
17. We are grateful to an anonymous reviewer for highlighting this point.
Acknowledgments
The authors are indebted to Richard Deeg, Iain Hardie, Gregory Jackson, Charlotte Rommerskirchen,
Robin Vidra, Sam Knafo, participants at a June 2015 workshop at the University of Edinburgh and a
February 2016 workshop at the Freie Universistat, Berlin. We received very helpful comments on early
drafts of this paper from all of these people, as well as three anonymous reviewers. This paper was con-
ceived via an International Studies Association Workshop Grant in 2014 and the paper was presented
at the 2015 annual meeting of ISA. Remaining errors are our own. The referenced appendix will be
available at http://www.wkwinecoff.info/research as well as the journal’s repository.
Disclosure statement
No potential conflict of interest was reported by the authors.
Notes on contributors
Sylvia Maxfield is a professor of Management and Dean at the Providence College School of Business.
W. Kindred Winecoff is an assistant professor of Political Science at Indiana University Bloomington.
Kevin L. Young is an associate professor of Political Science at the University of Massachusetts

Amherst.
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Review of International Political Economy

ISSN: 0969-2290 (Print) 1466-4526 (Online) Journal homepage: http://www.tandfonline.com/loi/rrip20

An empirical investigation of the financialization

Sylvia Maxfield, W. Kindred Winecoff & Kevin L. Young

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An empirical investigation of the ﬁnancialization

Massachusetts Amherst, Amherst, MA, USA

CONTACT W. Kindred Winecoff wkwineco@indiana.edu

macroeconomic ﬁnancialization, which he calls ‘privatized Keynesianism.’ According

The spectre of Anglo-Americanization and ﬁnancial leverage as its

Financial economists have carefully examined cross-national changes in bank practices

Testing for convergence among relevant ﬁnancial clubs

The literature on convergence emphasizes the methodological impact of deﬁning the

Table 3. Types of convergence to a highly ﬁnancialized model and corresponding tests.

types of financial firms grouped transnationally. We isolate key classes of financial

National patterns of ﬁnancialized bank activity: cross-national

The fate of prudent ﬁrms in coordinated market economies

ization than the Anglo-American systems.

Still, there is little evidence supporting the ﬁnancialization convergence hypothesis

Convergence in transnational groups of comparable ﬁnancial ﬁrms

transnational presence. These include investment banks, bank holding companies,

national data-set illustrates the value of approaching disputed questions in political

subject to cross-border competition in their business lines, convergence may be a long

W. Kindred Winecoff is an assistant professor of Political Science at Indiana University Bloomington.

Kevin L. Young is an associate professor of Political Science at the University of Massachusetts

changes. World Politics, 64(3), 375–425.

with number 42307. Retrieved from https://ideas.repec.org/p/pra/mprapa/42307.html

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