The Other Side of Independence: The ECB as a Supervisor of the Eurozone Banking System

It become a common place in the academia to state than, despite some efforts such as the creation of the Banking Union and the implementation of Basel III agreements (Howarth and Quaglia, 2016), the post crisis regulatory efforts at both supranational and national level fall short of expectations (Engelen et al:, 2011, Helleiner, 2014, Coupey-Souberran, 2015). In the past, the academic literature on central banking has thoroughly studied central banks´ independency towards political authorities (Alessina and Summers, 1992, Howarth and Loedel, 2005) and, since the crisis, their unconventional monetary instruments and their unintended consequences (Goodharth et al:, 2014, Fontan, 2016). This paper aims at completing these two streams of literature on banking regulation and supervision and central banking by exploring the role played by the ECB as a supervisor of the Eurozone banking system and as a central player in the regulation reforms. More precisely, I will explore the extent of ECB independency towards financial instructions by mobilizing the concept of financial dominance (Dietsch et al., 2018). The latter obtains when the attainment of central banks’ policy goals is compromised by some contingent features of financial markets or patterns of behaviour of market participants. Financial dominance is a matter of degree, which is determined by three factors: regulatory capture (Adolph, 2013, Kwak, 2014), infrastructural power (Braun, 2017, Gabor, 2016) and the risk of moral hazard linked to the existence of TBTF institutions (Brunnermaier and Sannikov, 2015). I will explore the degree of the ECB financial dominance and the role played by these three factors in the following case studies: the ECB calibration of the Asset Quality Review, ECB on-site inspections and the role it played during the CRDIV and the CMU reforms. The methodology of this research is qualitative and it will include the conduct of semi-structured interviews and the analysis of four sets of primary data.