Solving 'Too Big to Fail': The Role of the ECB in Reforming EU Bank Resolution and Bank Structures

In the aftermath of the Eurozone crisis, policy-makers in the European Union (EU) put forward extensive policy reforms in order to tackle the risks created by financial institutions that are 'too big to fail' in areas such as bank resolution regimes and rules on banking structure. This paper examines the dynamics of composite policy reforms in these two areas by focusing on the degree of supranationalisation, meaning the setting up of new EU institutions, the transfer of powers and competencies from the member states to the EU and the harmonization (minimum or maximum) imposed by the new rules. The paper aims to contribute to workshop theme (2): comparative case studies of change in central bank policies, mandates or organizational forms, looking in particular into the new EU bank resolution regime and rules regarding bank structures. It is argued that the two areas show different degrees of progress towards a coherent supranational framework. While we observe robust progress toward more supranationalisation in the realm of bank resolution regimes, we see limited supranationalisation in banking structural reforms. There is also an important euro area dimension related to the new institutions and rules in the construction of Banking Union. What has been the role of supranational entrepreneurs such as the European Central Bank (ECB) in the process of policy reform? The paper explores how the ECB has balanced the ambitious European harmonisation agenda with member states' concerns about preserving the diversity of national banking models. On a theoretical level, the paper examines the factors that shape the ECB’s ability to act as a policy entrepreneur, such as the extent of preceding interconnected reforms, political coloration of the ruling governments, and stakeholder mobilisation opposing further reforms.