The Political Economy of European Banking Union

Political leadership of the European Central Bank

“…It also showed the vulnerability of collective action in the EU -it being so reliant on national parliamentary approval. As we will see below, the EU eventually sought to deal with this shortcoming by creating the European Financial Stability Facility (EFSF) (since October 2012: the European Stability Mechanism) and is working towards deeper economic integration (for instance the creation of a banking union (Howarth and Quaglia 2016) and further plans for further deepening EMU through the four and five presidents report).…”

Brexit and the Single European Financial Market

“…The vast majority of these measures regulated activities or entities that were previously unregulated (or subject to self‐regulation) in the EU and its member states (including credit rating agencies) (Quaglia, ); or at the EU level (such as hedge funds and bank resolution) (Buckley and Howarth, ); or at the national, EU and international levels (over the counter derivatives) (Pagliari, ). In other instances, legislation imposed heavier, more prescriptive and more burdensome requirements on financial entities that were already regulated prior to the crisis – as in the case of higher capital requirements for banks and new liquidity management rules (the Capital Requirements Directive IV) – or they set in place more substantial protection for depositors (the revised Deposit Guarantee Scheme Directive) (Howarth and Quaglia, ). The reform of the financial services architecture following the de Larosière Report (2009) was designed to strengthen financial supervision at the EU level and to foster macro‐prudential supervision in the EU (Hennessy, ).…”

“…The British banking system was also by far the most internationalized in terms of non‐EU headquartered banks active in the UK and the activities of British banks abroad. The UK was most exposed to the potential instability of globally systemic banks, which affected the British banking system more in relative terms than others in Europe (Howarth and Quaglia, ). British banks by and large supported the creation of the SSM, but none sought British participation (BBA, ).…”

“…Hence, the British demanded an EBA voting reform, whereby any decision by the Authority had to be approved by a ‘double majority’ of member states inside and outside Banking Union, thus effectively giving veto power to a small number of non‐euro area member states. Some euro area member states, notably France and Germany, resisted British requests but eventually an agreement was reached on the creation of a double majority system until the number of non‐Banking Union member states dwindled to less than four (Howarth and Quaglia, ). The end of the UK's membership of the EU is likely to weaken the bargaining position within the EBA of those supervisors from member states outside of Banking Union.…”

The Conundrum of Solving ‘Too Big to Fail’ in the European Union: Supranationalization at Different Speeds

“…The national compartments would then be pooled into a single fund. In this respect, the German government worried about the moral hazard resulting from the mutualization of risks and, therefore, insisted on setting up the fund through an intergovernmental agreement among the participating Member States (Howarth and Quaglia, , ).…”