United We Stand: Banking System Structure and State Preferences in European Banking Union

French negotiators won an unexpected victory over their German counterparts in the debates over European banking union, extending the reach of EU regulation to all European banks, without the opt-outs for primarily domestically-focused banks German negotiators sought. This is contrary to the usual dominance of German positions in European Union negotiations. I explain this divergence by tracing how the structure of domestic financial systems shapes the construction of policymakers’ interests on banking union. French banking is dominated by four formerly state-owned banks with transnational operations, which all have an interest in a common European regulatory framework. Thanks to elite-level linkages they have the access to shape the interests of French policymakers and their common position was reflected in a unified position by French negotiators. German banks are organized into private governance associations which similarly enhance their ability to influence policymakers, but are internally divided between large private banks with transnational operations, which favored a comprehensive banking union, and primarily domestically-focused savings banks and mutual banks, which sought to escape EU regulation. Because of this, German policymakers themselves divided on which position to promote.  French negotiators took advantage of these divisions to win the argument over the reach of banking union regulation.