Saturday, March 15, 2014
Diplomat (Omni Shoreham)
West European states have a long history of banking sector protectionism. Control over credit allocation is believed to contribute to economic development and competitiveness goals, insulation from external economic shocks, and control over monetary policy. This paper explains the potentially dramatic loss in domestic control over banks that is embodied by the initial phase of European Banking Union—specifically the turn toward centralized bank supervision in the European Central Bank, which is meant to support the euro. The paper advances three arguments to explain the shift to centralized bank supervision. We argue that most broadly, ongoing liberalization in the global and European economies has made banking sector protectionism both more costly and conflictual. Second, we contend that because many of the biggest banks have internationalized their operations over the least two decades, they prefer centralized regulation and supervision to national. Third and most proximately, contrary to functionalist or intergovernmental expectations, we find that the European Commission has pushed banking union ahead of member states’ understanding of their own interests and also has, at critical junctures, isolated Germany to secure that country’s assent to controversial measures.
