What conditions the potency of governance ideas in shaping governance architectures? This paper analyzes this question for the case of common supervision for Central Counter-Parties (CCPs) in the European Union. Since the EU enacted a new EU wide regulatory framework in 2012 (EMIR), CCPs are subject to common European rules coupled with decentralized national supervision. In this way, regulatory reforms to stabilize the OTC derivatives market replicated the coupling of intense competition based on private risk management systems with the national supervision of European rules, a governance flaw identified as particularly harmful during the financial crisis. And yet, the problematic nature of this governance structure was known to policy makers in Europe at least from 2001. This paper traces the history of this problem awareness and inquires which factors account for the fact that only in 2017 serious negotiations at the EU level ensued which are about to establish a common supervision of CCPs to fix this flaw in the system of governance. We show how an initially limited problem awareness coupled with the limited size of CCPs gave way to more acute concerns by 2010, which however remained impotent due to opposition to European supervision at the national level, coupled with concerns over the mutualization of fiscal liabilities. We then identify the dynamics surrounding CMU, with its call for supervisory convergence, the growth of supervisory powers and capabilities at ESMA, Brexit and the concomitant exclusion of the UK and the reduction of fiscal liabilities due to a credible recovery and resolution mechanism for CCPs as the factors accounting for the present-day potency of the concern regarding decentralized supervision. In this way, our paper contributes to the literature on the power of ideas in the evolution of governance architectures, specifying the context conditions, both ideational and material that affect their potency.
