The Process Towards The Centralisation Of The European Financial Supervisory Architecture; The Case Of The Banking Union

The EU’s institutional architecture for financial regulation, based upon the principles of decentralisation across countries, segmentation across sectors, and voluntary cooperation among national regulators was clearly unsuitable to deal with overall financial stability risks arising from the internationalisation and conglomeration of financial firms. Oppositions to a true European arrangement for burden-sharing, and potential distributional consequences in the event of a crisis of a cross border bank have been the main hurdle to centralisation at European-level financial supervision. At the same time, the objective to create a levelled playing field in the EU single market has been always considered the necessary condition to promote the openness of national financial markets and cross-border banking. The paper aims to demonstrate that, since a single EU financial regulator in a multi-currency area is definitely a no viable alternative, the banking union’s design is just a partial solution for financial stability problems arising from the fragmentation of the single market in the event of idiosyncratic or systemic banking crises. The analysis performed on non-euro countries’ assessments of the pros and cons in joining the banking union clearly shows that until the fiscal responsibility for financial stability remains at the national level, the regulatory centralisation at the EU level cannot severe the traditional divide between home and host supervisors.