Kim Pernell’s Harvard Ph.D. dissertation in sociology began with what seemed at the time like an ambitious question: why did the 2008 financial crisis hit some countries harder than others, despite shared adherence to the Basel framework, an international set of capital requirements for banks established in 1988?
“The problem,” says Pernell, now an assistant professor of sociology at The University of Texas at Austin, “was that the answer wasn’t very interesting.”
The Basel rules were too flexible to enforce meaningful convergence among nations, so national regulatory systems remained distinct. Determined to uncover deeper insights, Pernell expanded her scope by 200 years or so. Instead of asking why countries have been different for the past few decades, she examined how national institutions and cultural principles shaped these differences over centuries. The result was her new book, Visions of Financial Order: National Institutions and the Development of Banking Regulation, published in August 2024 by Princeton University Press.
The U.S., Canada, and Spain serve as her case studies—three countries that ostensibly operated under the same global rules but pursued dramatically different regulatory strategies, with consequences that reverberated through the 2008 crisis. While U.S. regulators championed market discipline, Canadian regulators emphasized balancing prudence with competitiveness, and Spanish regulators prioritized state-directed oversight.
These approaches weren’t arbitrary but stemmed from what Pernell describes as “principles of order” deeply rooted in each nation’s history and culture, as well as in the cultures of the regulators themselves.
“We often think of regulation as purely rational or politically driven,” she says, “but it’s also profoundly cultural. Policymaker and regulators’ decisions are shaped by shared beliefs about what is doable, sayable, or even thinkable within their institutional and cultural contexts.”
In the U.S., she argues, two competing principles have long dominated: community sovereignty and competition. Community sovereignty emphasizes local control and resistance to centralized power, while the principle of competition sees free-market forces as the path to prosperity and stability. These principles often clash, shaping regulatory debates from Alexander Hamilton and Thomas Jefferson’s early disputes to the deregulation era of the 1990s up through today.
Canada’s regulatory ethos has been guided by “elite autonomy”—a belief in granting societal elites the power to shape economic policy—and the protection of individual rights. Spain, by contrast, follows a corporatist harmony model, where the state mediates between powerful social groups while positioning itself as the ultimate guardian of public welfare. These principles influence everything from bank structures to risk management practices, producing regulatory systems that are surprisingly resilient or vulnerable when crises emerge.
One of the most striking findings in Pernell’s book is how regulatory regimes have evolved over time. In the mid-20th century, the U.S. maintained one of the strictest banking systems in the world, while Canada’s was comparatively hands-off. By the 1990s and 2000s, these patterns had flipped. The U.S. had become highly permissive, with policies that encouraged risky financial instruments and excluded key entities from regulatory oversight. Canada, in contrast, adopted a more conservative approach, emphasizing risk mitigation. Spain, meanwhile, developed one of the strictest regulatory systems in Europe.
What accounts for these dramatic shifts? Pernell attributes them to the dynamic interplay of institutional conflicts and crises.
“Institutions are not monolithic,” she explains. “They are composed of multiple principles of order, which can sometimes clash. These conflicts create opportunities for change, especially in moments of crisis.”
The regulatory philosophies of these nations had profound effects during the 2008 financial crisis. In the U.S., where regulation was light, banks experienced a number of catastrophic meltdowns. Canada emerged relatively unscathed. Spanish regulators, known for their strict interventionist policies, also minimized the crisis’s impact.
At its heart, Visions of Financial Order is a call to recognize the human stakes of financial regulation. “When banks suffer, the rest of the economy suffers,” Pernell writes. “And it’s usually the socially vulnerable who bear the brunt.” For Pernell, preventing financial crises is not just a technical challenge but a matter of justice. By examining the cultural underpinnings of regulation, she hopes to offer lessons for designing systems that prioritize stability and the broad welfare of the populace.
This perspective has personal roots. Growing up in Houston during the collapse of Enron, Pernell witnessed the devastating ripple effects of corporate malfeasance. Her father, who worked for an advertising company, lost his job as a result of the Enron implosion, sparking her lifelong interest in why organizations “do bad things” and how regulatory systems can prevent harm. That interest deepened during the 2008 crisis, which unfolded as she began her graduate studies.
“The same themes kept coming up,” she recalls. “Why do banks take excessive risks? Why do regulators let them?”
Pernell’s research offers a surprisingly sympathetic view of the regulators themselves, whose work she has come to see as immensely difficult. “It’s not a villain story,” she says. By shedding light on the cultural forces that shape regulation, she hopes to move the conversation beyond simplistic narratives of “good” versus “bad” regulators.
By highlighting the cultural and institutional roots of regulatory decisions, Pernell’s work suggests that effective regulation requires more than technical expertise or political will. It also demands an understanding of the cultural beliefs and institutional contexts that shape regulatory behavior.
“If we want to do better next time, we need to grapple with why regulation failed to protect us last time,” Pernell emphasizes. “That means paying closer attention to the cultural underpinnings of regulatory systems.”
This perspective has important implications for policymakers. For one, it suggests that efforts to reform financial regulation must account for national cultural and institutional contexts. Policies that work in one country may not be effective in another if they clash with deeply ingrained principles of order.
“One-size-fits-all solutions are unlikely to succeed,” Pernell cautions. “Regulatory systems need to be tailored to the unique cultural and institutional landscapes of each country.”
Want to hear more about Pernell, her new book, and her insights about how to think more holistically about the nature of regulation? Click here to access the latest episode of the Extra Credit podcast, featuring Pernell in conversation with host Dan Oppenheimer.