Uniformity, Differentiation, and Experimentalism in EU Financial Regulation: The Single Supervisory Mechanism in Action

Abstract

In no other policy field has European integration advanced more rapidly over the past decade nor has the challenge of reconciling uniform rules with national diversity arisen more sharply than in financial regulation generally and banking supervision in particular. The creation of the Single Supervisory Mechanism (SSM) for European Banking Union is widely recognized as one of the most significant integration steps since the Maastricht Treaty and the introduction of the euro. This paper begins by outlining two alternative approaches to integrating diversity within the EU: differentiated integration (DI), the adoption of policies and rules that apply only to some Member States, but not to others; and experimentalist governance (XG), a process of provisional goal setting and revision, based on recursive learning from comparative review of implementation in different local contexts. The paper then goes on to analyze the SSM from three distinct perspectives: first, as a centralized hierarchy, seeking to impose and enforce uniform rules, standards, and procedures across the Banking Union; second, as a polyarchic network, seeking to orchestrate intensive cooperation between the ECB and the NCAs; and finally, as an experimentalist organization, seeking to accommodate and learn from diversity by adapting common rules and procedures to the specificities of individual banks, and revising them regularly through peer review of implementation experience at multiple levels. Drawing on a wide range of documentation and in-depth interviews with EU and national officials, the paper reconstructs the evolution of the SSM's organizational practices and decision-making processes, along with its institutional structures, from its inception in 2014 to the present. From this study of the SSM "in action", the paper argues that while each of these three views highlights important characteristics which need to be incorporated into any comprehensive picture, the most encompassing perspective is that of the SSM as an experimentalist organization, which integrates and recasts key elements of the other two views into a more complete and dynamic analysis of its evolving architecture and practical operations. The paper concludes by drawing out some broader implications from the case of the SSM for the relationship between uniformity, differentiation, and experimentalism in EU regulation more generally.

EU regulation between uniformity, differentiation, and experimentalism: Electricity and banking compared

“…Such harmonization and supervisory convergence is considered crucial to advance the SSM's mission and strategic aims of ‘contributing to the safety and soundness of credit institutions and the stability of the financial system’ while ‘promoting European financial integration’ by reducing opportunities for regulatory arbitrage, removing national barriers to cross-border operations, and ensuring a level playing field for all Eurozone banks (ECB Banking Supervision, 2015: 5, 2016, 2018: 4-6, chs. 3-5; Zeitlin, 2021: 11–14).…”

“…NCAs themselves retain an independent voice on EU banking regulation through their dominant position in the EBA, which they value as a means of ensuring that distinctive national preferences and concerns are taken into account in framing the rules the SSM is expected to apply [18]. The institutional design of the SSM can thus be said to encourage a cooperative rather than a hierarchical approach by the ECB to joint supervision with the NCAs, thereby enhancing its legitimacy and social acceptance (Gren, 2018; Petit, 2019; Zeitlin, 2021: 14–19).…”

“…NCAs of banks with subsidiaries or headquarters in other member states appreciate the deeper insight into each other's national markets and supervisory approaches provided by the JSTs [23]. Systematic peer review and benchmarking play crucial roles in resolving disagreements between ECB and national officials about the SREP decisions on individual banks, and in ensuring consistent outcomes across the SSM thereby increasing both effective implementation and social acceptance of EU banking regulation (Zeitlin, 2021: 20–24) [24].…”

Uniformity, Experimentalism, and the Unfulfilled Promise of Differentiated Integration in EU Regulation of GMOs: Which Way Forward?

“…EU regulatory governance in the field of agricultural biotechnology, like EU electricity and financial regulation (Rangoni 2020(Rangoni , 2019Zeitlin 2021;Zeitlin and Rangoni 2021), challenges the view that the Internal Market domain is characterized by high interdependence and low politicization (e.g. Schimmelfenning et al 2015;Schimmelfennig and Winzen 2019).…”

EU Regulation between Uniformity, Differentiation, and Experimentalism: Electricity and Banking Compared

“…For a fuller presentation of the research on each policy domain, including a complete but anonymized list of expert interviews and extensive references to both primary documents and secondary literature, seeRangoni (2020) andZeitlin (2021). For reasons of space, only the most essential citations to these sources are provided in subsequent sections.…”