The New Banking Resolution Regime: from Integration to Dilution?

After the financial and sovereign debt crises, the European Union introduced resolution, as a new tool to manage banking crises, providing authorities with new significant powers to regulate failing banks. Resolution aims at organising bank failures and the ‘bail-in’ processes. Most of those regulatory changes were made through the adoption of a Banking Resolution and Recovery Directive in 2014. The Eurozone went a step further by adopting in 2013 a common resolution regime as part of the Banking Union – in addition to the integration of financial supervision, a new task allocated to the ECB. Resolution entailed the creation of a new agency in Brussels, the Single Resolution Board, that has been operational since 2015. The Banking Union has largely been discussed as a major step of EU integration, possibly the most significant since the adoption of the single currency, with member states finally accepting to give away (some) financial regulatory powers to the EU (Nielsen and Smeets 2017, Howarth and Quaglia 2016; Lombardi and Moschella 2016; Howarth and Quaglia 2014, Rynck 2016, Donnelly 2018; Schäfer 2016). However, as the first round of studies of the banking union focused on the negotiation of the agreements, it is time to shift the focus to implementation, and analyse the actual functioning of the banking union: has integration really happened, or have states backtracked from their engagement? How can we explain the current stalemate in banking negotiations (about the adoption of a common backstop, the reform of the ESM and the adoption of a common deposit insurance system)? To do so, we focus on resolution which has received less attention in the literature. Resolution offers a few specificities – in comparison to supervision – that points out the limits of the banking union. Indeed, it still relies much more than supervision. Furthermore a couple of recent cases of resolution and non-resolution (i.e. when the state aid regime or national bank insolvency laws were used) suggest that the degree of mutualisation of banking crisis management may not be as strong as initially intended. In other words, we argue that implementation biases, persisting divergences in national legal systems, and power politics have diluted the (intended) integration of banking resolution. The paper aims at explaining the adoption and functioning of these reforms in the EU multi-level governance system. It relies on 45 qualitative interviews conducted within relevant EU institutions and national regulators from ministries and central banks (in France, the UK, Germany, the Netherlands, and Spain). It focuses on problem-solving capacity and multi-level implementation. It discusses the challenges of implementation, and shows how implementation constraints unravels the promised integration, partly due to an incomplete integration, differentiated problem solving capacity of national administration, as well as power politics to safeguard national banking interest, leaving EU institutions in a weaker position to pursue their ‘common’ agenda.