How integrated is European banking governance? This article argues that understanding contemporary EU-level reforms in this policy field requires a reassessment of the regulatory and supervisory integration that took place in the two decades preceding the sovereign debt and banking crisis. Focusing on the content of European banking legislation and the effectiveness of multilateral mechanisms for cooperation between national supervisory authorities, the article argues that until recently, the integration framework in banking promoted only ‘cosmetic convergence’ between national regimes. Built upon the legislative foundations of ‘mutual recognition’, ‘minimum essential harmonisation’ and ‘home country control’, the pre-crisis framework permitted significant divergence at ‘post-regulatory’ stages of the governance process, including the day-to-day supervisory tasks of authorization, verification and enforcement, and the procedures for handling crisis situations. As a consequence of on-going reforms, cosmetic convergence is now giving way to substantive regulatory and supervisory integration. A ‘single rulebook’, based on the principle of ‘maximum harmonisation’, will largely eliminate national regulatory diversity. Simultaneously a new quasi-federal ‘Single Supervisory Mechanism’ will significantly curtail opportunities for post-regulatory divergence. However, even within this enhanced European framework, national authorities will continue to occupy a powerful position, enjoying ‘constrained discretion’ to adjust macro-prudential policy instruments at the national level. The article argues that the shift from cosmetic convergence to constrained discretion demonstrates how the Europeanisation of financial governance is constrained within material parameters: as long as national authorities remain fiscally and politically liable for maintaining financial stability within their borders, the construction of a federal regime in banking will remain unfinished.
