The EU Last Grand Bargain: Explaining the Creation and Institutional Design of the European Banking Union

The creation of Banking Union in the years from 2012 to 2014 represents one of the most important steps towards European integration to date. Banking union is a “paradox” because it is a case of more integration. After all the resistance of the member states to centralized banking supervision and resolution, integration continued in a fast but asymmetrical way. Banking union is a hybrid construction because is built on a tension between strong transfer of supervision to the European level, but significant conservation of national authority in resolution, deposit insurance and provision of public backstops. There is no empowerment of the European Commission, but of the ECB, which also showed its own will to protect the Euro, which was contested especially by Germany, and of the Single Resolution Board. The research question is: How can the creation and institutional design of Banking Union be explained? This paper analyses this outcome through an intergovernmentalist and neofunctionalist lens. The potential issue-linkages between the elements of banking union are investigated. Data consist of the European Council conclusions, Council’s minutes and press releases, interviews and speeches of the member states’ Heads of Government or State and finance ministers, Commission’s proposals, documents from private actors and academia, media articles, and semi-structured interviews with EU officials. Empirically, this research sheds light on the process by which member states delegate powers to the ECB and create the Single Resolution Board despite their national interests. Theoretically, this research aims at crafting a theoretical explanation for this integration outcome.