The Political Economy of the Single Supervisory Mechanism: Squaring the ‘Inconsistent Quartet’

Howarth, David and Quaglia, Lucia (2015) The Political Economy of the Single Supervisory Mechanism: Squaring the ‘Inconsistent Quartet’. [Conference Proceedings] (Submitted)

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Abstract

This paper sets out to explain national preferences on the Single Supervisory Mechanism (SSM) concerning: support for creating and participating in supranational banking supervision in the European Union; the division of competences between the European Central Bank and national banking supervisors; the nature of indirect supervision. It is argued that member states in the euro area faced a ‘financial inconsistent quartet’, whereby they could not secure at the same time: 1) financial stability, 2) financial integration, 3) national financial policies and 4) the single currency. The ‘financial inconsistent quartet’ reinforced the logic for euro area member states to create the SSM (and other elements of Banking Union) and those seeking to join the euro area to participate. However, the analytical usefulness of this concept to explain national preferences on the SSM relies upon its nuanced application to individual countries taking into account the distinct patterns in the internationalisation of national banking systems.

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