Large banks in the ECB’s eyes: from curse to blessing. Tracing the diffusion of the “blessing” idea from national Finance Ministries to the ECB’s executive council

In the aftermath of the great financial crisis, there seemed to be a consensus within the ECB that “If institutions are too big to fail, they are too big to exist”. However, this stance has radically changed over the last decade. An analysis of the ECB‘s speeches concerning banking shows that members of the governing council went from seeing large European banks as a "curse" to seeing them as a "blessing". What explains the change of ECB’s position? A conventional spill-over theory of integration may explain this outcome. With the adoption of the Single Supervisory Mechanism in 2014, the integration of supervision may have fostered preferences for further market integration among European central bankers and, in their view, cross-border banking mergers would deepen integration. However, through a content analysis of speeches by national and European policymakers between 2009 and 2020, this paper suggests another explanation. ECB’s position toward large banks has not only changed with regard to promoting instead of downsizing them. The nature of the argument used by ECB council members to support their priorities towards banking has also changed. While they used to talk about financial stability, they now talk about European sovereignty in banking matters. However, the sovereignty argument in favor of (bigger and) more competitive European banks can be traced back to the national Finance ministries of the larger member states. This paper suggests that the politics of European banking is not a story of further market integration overcoming member states’ preferences, but rather a story of further market integration through the diffusion of the priorities of powerful agencies within member states up to the European level.