The assignment of financial regulatory powers to the ECB has been greeted by many observers with scepticism. Critics suggest that the central bank should have a narrow remit with clear accountability for the inflation outcome, and that wider powers raise issues of democratic legitimacy. This paper takes a different approach: rather than asking whether the dual mandate is legitimate, we ask whether the central bank’s task is viable. To be viable, a financial regulator needs cooperation from political authorities, and more regulatory powers are not necessarily a substitute for cooperation. Our approach highlights how the vaunted independence of the ECB brings with it impediments to cooperation. We address two questions to understand the impact of the ECB’s additional powers on cooperation. First, why did the ECB seek and obtain the powers of financial regulator, rather than creating a separate supranational body? Second, what are the implications of the incompleteness of the banking union? The answers to these questions demonstrate that, while the ECB obtained political cooperation to gain extended regulatory powers, there are likely limits to that cooperation that will impede the ECB’s effectiveness as a regulator.
