Crises and Integration in European Banking Union

Abstract

Abstract This book develops a theory of which crises are most likely to produce substantially deeper European integration based on the interaction of two dimensions of a crisis: the severity of the threat to the existing status quo and the origin of the crisis either within or outside of the sector of interest. In order to produce truly fundamental reform, a crisis must both be severe enough that reform is undeniably necessary and have originated within the sector of interest, such that reform could plausibly prevent future recurrences of the crisis. The theory is tested by examining the relative impact of a series of crises on the centralization of European banking regulation in the twenty-first century, and in particular on efforts to complete a European banking and capital markets union. It looks in turn at the 2007–09 Banking Crisis, the 2010–14 Debt Crisis, the 2016 Brexit Crisis, and the 2020–21 COVID Pandemic. In brief, Brexit, a moderate exogenous crisis, produced no notable reform, while both the moderate endogenous 2007–09 Banking Crisis and the severe exogenous COVID-19 Pandemic produced modest reforms, in form of the creation of the European Banking Authority and an accelerated timeline for using the European Stability Mechanism to backstop funding of bank resolution respectively. Only the severe endogenous 2010–14 Debt Crisis produced the substantial reform out of crisis envisioned by scholars and practitioners, by moving regulation and resolution of the largest Eurozone banks to the newly created Single Supervisory Mechanism and Single Resolution Mechanism.