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

I am currenlty working on my book manuscript "Banking on States. The Divergent European Trajectories of Finance after the crisis". The book analyzes the role of European states in shaping the evolution of their domestic financial industries after the crisis and the institutional mediation of the power of finance.

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 contend that states have become irrelevant actors. By contrast, I argue that states have been proactive in shaping the evolution of finance after 2008. The French state has supported the expansion of its banks, both globally and at home. The German state has reinforced the incumbent position of regional public banks in its domestic retail markets, while permitting its largest commercial bank, Deutsche Bank, to grow on a global scale. The British state has forced its domestic banks to shrink quite dramatically while continuing to provide infrastructures for non-British global financial players.

States have shaped their domestic financial industry distinctively through the adoption of specific policies and through the differentiated enforcement of policies adopted at the international and European levels. Financial actors are commonly assumed to be structurally powerful precisely because they can easily escape policies passed at the national level. This may be true for the regulation of market activities operated on a global scale: if a country puts stricter bans on derivative trading, a bank headquartered there may decide to operate this business abroad. But other policies are more difficult to escape because they regulate activities that are not easily relocated, such as retail banking. Today, retail banking and market banking are closely intertwined in the business model of global universal banks. Regulating retail banking affects global universal banks in their entirety and thus contributes to shaping the financial industry in which those banks play a dominant role.

TFor this research, I have conducted comparisons of 12 financial regulation policies and cases of regulation enforcement in France, Germany and the UK since 2008 - unlike previous work focusing on a single policy or regulatory issue. My analysis builds on data collected during more than 100 interviews with a variety of prominent market and public actors, as well as on private and publicly available documentation released by administrative and business organizations. After several decades of globalization and European integration, states have retained divergent priorities towards finance. Why?

My research shows that while the encompassing institutions that characterized post-war models of capitalism have been disrupted, other more limited and softer institutions remain. These institutions systematically determine how actors' preferences are shaped and which actors occupy key positions in policymaking processes, a situation which leads to predictable policy outcomes. In France, a close nexus of socially homogeneous elites composed of state officials and banks' top managers occupies the key position in the decision-making process. French policymakers have largely abided by banks' preferences. In Germany, influential local governments have systematically opposed policies that might prove detrimental to "their" state public banks. On the other side, the urge to promote one German champion on the global financial scene has led federal officials to submit to Deutsche Bank's preferences whenever the interests of state public banks were not at stake. Finally, in the UK, adversarial mechanisms of interaction within and between domestic bankers and state officials and regulators have enabled policy entrepreneurs to exploit political leverage to the detriment of British 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.

The committee of the dissertation on which the book builds was composed of Paul Pierson (Co-Chair), Jonah Levy (Co-Chair), Steve Vogel, John Zysman and Neil Fligstein.