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.

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