Explaining Cosmetic Compliance with International Standards: The Implementation of the Basle Accord in Japan.

The aim of this research is to understand the mechanism that drives compliance with legally non-binding international standards by addressing the implementation of the Basle Accord in Japan during the period of 1988 to 2003. The major findings are as follows: First, external compliance pressures, from foreign supervisory authorities and from the market, were not effective in ensuring compliance with the substance of the Basle Accord; in essence, Japan's formal compliance with it was cosmetic. Second, although external pressures fostered, to an extent, compliance by Japanese banks in formally complying with the Accord, its effectiveness was very limited. In fact, the impact of the external pressure was, for the most part, a reflection of compliance pressure from the home supervisory authority. Third, during the mid-1990s, the Japanese supervisory authority exercised regulatory forbearance to cosmetically comply with the Accord, as they lacked the capacity to comply with it in substance and, at the same time, could not cope with the systemic costs incurred by failure to comply. Lastly, although systemic costs of compliance failure were not high after the late 1990s, the diffusion of compliance costs from banks to a politically influential sector hindered any effort by the supervisory authority to rigorously implement the Accord. [ABSTRACT FROM AUTHOR]