Integrating rules, disintegrating markets: the end of national discretion in European banking?

ABSTRACT

This article examines the integration of prudential banking regulation and supervision in the European Union. It demonstrates that incremental integration in the two decades preceding the sovereign debt and banking crisis produced a regulatory process that afforded member states wide discretion when it came to implementing European rules at the national level. Decentralized implementation was an aggravating factor in the partial disintegration of the Single Market in financial services since 2008. The recently agreed ‘Single Rulebook’ and ‘Single Supervisory Mechanism’ reduce the scope for home bias in the implementation of European rules, thereby shifting the regulatory process in banking closer towards an idealized ‘end-point’ of outright supranational governance. However, change is taking place within an increasingly complex regulatory environment that is shaping the outcome of reform. One consequence is that national discretion in some important prudential areas will persist.

KEY WORDS:

• Banking union
• financial integration
• historical institutionalism
• supranational governance

ACKNOWLEDGEMENTS

I would like to thank Andre Broome, David Howarth, Michele Chang and the four anonymous reviewers for their constructive input and criticisms. This work was supported by the Economic and Social Research Council (grant number ES/I022589/1).

Notes

1 Another reason why the SSM cannot be explained as merely the quid pro quo for burden sharing is that the former was agreed in the absence of any firm agreement on the latter. At the time of writing, member states have agreed to only a highly limited form of shared resolution funding.

2 Named after Baron Alexandre Lamfalussy, chairman of the 2001 ‘Committee of Wise Men’, which proposed the framework.

3 Following Streeck and Thelen (2005), institutions are conceived here in a deliberately narrow sense as formal rules specifying permissible and impermissible behaviour.

4 Additionally, a new ‘European Banking Committee’ succeeded the Banking Advisory Committee in 2005. Composed of national finance ministry officials, this ‘Level 2’ committee assists the Commission in adopting implementing legislation.

5 In ‘emergency situations’, the EBA may exercise enhanced powers, including the power to direct national authorities and individual firms. These powers have never been used because no authority has ever deemed it prudent to declare an emergency.

6 Other member states may participate by concluding close co-operation agreements.

7 As foreseen in Regulation 1024/2013, Article 4(3).

8 Seikel (2013) examines the role of the Commission's Directorate General for Competition in spurring regulatory integration.

Additional information

Biographical note

Samuel McPhilemy is a doctoral researcher at the University of Warwick, UK.