From failure to failure? The political economy of asset management regulation and supervision in the EU

The 2008 financial crisis and its regulatory aftermath have reshaped the political economy of finance. Asset manager capitalism has expanded, allowing asset management companies to grow at the expense of traditional banks, while the U.S. economy has consistently outperformed Europe. These trends reinforce one another, with U.S. asset managers increasingly dominating the landscape and directing billions of EU savings and investments to the U.S., contributing to Europe’s relative sluggish growth. European policymakers have faced challenges in adapting to these shifts. Central banks face probable systemic risks from asset managers, yet prudential regulation remains bank-focused. Since 2015, European institutions and some Member States have championed the creation of an effective Capital Markets Union, aiming to integrate financial markets, regulation, and supervision to foster the emergence of “European financial champions”, but progress has been limited. Recent crises, including the COVID-19 pandemic and the war in Ukraine, have heightened the need for private capital to support Europe’s green and digital transitions. This paper examines the recurring failures to adopt effective asset management regulation and supervision after the financial crisis. Utilizing process tracing and drawing from interviews with financial actors, civil servants, and policymakers, as well as analysis of official documents, reports and press, the paper argues that a triple contradiction among Member States, regulatory agencies, and private actors has hindered these regulatory efforts. Beyond addressing the immediate issues of asset management policymaking, this paper contributes to discussions on economic patriotism, geography of finance, European policymaking, financial regulatory cycles, and the political economy of prudential regulation. It also adds empirical insights to ongoing debates about Europe’s economic future—spurred by the reports of Noyer, Letta, and Draghi—and the dynamics of transatlantic economic competition.