Banking on states? The divergent trajectories of European finance after the crisis

Many conventional theories in Economics and Political Science stress that the liberalization and globalization of finance have homogenized the behavior of state and market actors. Some even go so far as to assume that states have become irrelevant actors. However, these theories cannot account for empirical observations laid out in my dissertation research: that responses to the financial crisis in Europe have largely been crafted at the national level.

Since the crisis of 2008, there have been different trajectories of finance across Europe. In France, banks have grown bigger, as they have developed their operations in market-based banking as well as in traditional banking, both globally and at home. In Germany, Deutsche Bank maintained, and even developed, its global market activities until 2014-5. On the other side, local banks have reinforced their incumbent position in domestic retail markets. British banks have shrunk quite dramatically. They have largely retreated from the game of global finance, while foreign financial institutions have continued to use the infrastructures provided by the City of London as a base for their global market operations. Now, which actors dominate the national financial system, and how those actors operate the financial intermediation between surpluses and needs of capital, have important distributive and functional consequences for the whole political economy.

I argue that divergent national trajectories of finance result from the differentiated influence of public authorities on banks' management, through the passing of diverse regulation, through the differentiated enforcement of international regulation, or through direct intervention of public authorities towards banks' management. For this research, I have led a comparison of 12 financial regulation policies and cases of regulation enforcement in France, German and the since 2008. I have questioned each national version of a financial policy according to whether they tend to hinder/permit/enhance the expansion of large banks, globally and at home. I find that everywhere, states have been pro-active in the shaping of the post-crisis domestic financial landscapes; yet they have promoted very different re-organizations of their domestic financial industries.

The divergent priorities of the state towards finance can be explained by different institutionalized modes of coordination between private and public actors across political economies. In France, symbiotic mechanisms of interaction between domestic bankers and government officials have led to the crafting of mutually benefiting compromises in response to the crisis. French state officials have thus to a large extent abided by banks' preferences. Yet, this outcome is to understand in mirror of the reciprocal character of the relationship: in important cases, banks also complied with state's preferences. In Germany, local governments have systematically opposed policies that may have been detrimental to "their" local public banks. On the other side, the urge to promote one German champion in the global financial markets and the deference of state officials towards the expertise of banks' top managers, have led the federal government to abide by the preferences of German largest commercial bank. In the UK, adversarial mechanisms of interaction within and between domestic bankers and state officials have enabled identified public actors to exploit political leverage to the detriment of British domestic banks.

I have based my analysis on data collected during more than 100 interviews with a variety of prominent market actors and public officials as well as private and publicly available documentation released by administrative and business organizations. The analysis proceeds through 12 mini case studies of policy-making processes and two more in-depth case studies of the Banking Structural Reform and the management of the sovereign debt crisis of 2010-2011.