After the outbreak of the crisis in 2008, a startlingly rapid ideational shift occurred in financial regulation argues Andrew Baker. Macroprudential regulation (MPR), that only had marginal relevance to financial supervisors and regulators previously, came to the center of policy agenda. According to Baker it meant only a change at the level of understanding of international finance. In this paper, we argue that second and first order policy changes had also occurred in Europe, which leads us to conclude that we are not simply witnessing a gestalt flip, but a whole scale paradigm shift is enfolding in financial regulation and supervision.
In relation to these changes we ask the question what are the political and distributional consequences of this paradigm shift for banking. Our theoretical assumption is that because of MPR’s inherent logics individual banks must resist its implementation regardless of other factors. To prove this, we analyze regulatory and institutional changes and banks’ and other stakeholders’ reaction to them in Hungary and Slovakia, two Central and Eastern Europe countries.
These two countries are different in the contagion channels of the crisis. They also differ in the pattern of recovery and in the institutional configuration of banking supervision. They are also different in their legal tenders, since Slovakia introduced the Euro in 2009.
Yet, these two countries are similar in that MPR paradigm dominated financial regulation and supervision after the crisis. They also resemble in that the crisis hit them despite the fact that most of the banks’ portfolios were void of structured financial instruments. They also share the feature that the two countries’ governments did not made significant amount of fiscal transfers to the troubled banks (a crucial condition of MPR’s success in Western Europe). And most importantly they are similar in banks’ critical reaction to MPR measures.
