Rachel A. Epstein
- Published in print:
- 2017
- Published Online:
- September 2017
- ISBN:
- 9780198809968
- eISBN:
- 9780191847219
- Item type:
- chapter
- Publisher:
- Oxford University Press
- DOI:
- 10.1093/oso/9780198809968.003.0001
- Subject:
- Political Science, Political Economy
The paradox of financial control refers to the fact that while most governments resent or resist incursions on national bank ownership or management, European states with high levels of foreign bank ...
More
The paradox of financial control refers to the fact that while most governments resent or resist incursions on national bank ownership or management, European states with high levels of foreign bank ownership paid much lower costs through the recent financial crises than countries that had pursued banking sector protectionism. Europe is an ideal setting in which to investigate this paradox because extreme banking sector openness in the East coincided with banking sector protectionism in many western Eurozone countries. The otherwise homogenous institutional context of the European Union therefore revealed with precision the disparate effects of marketized bank–state ties through foreign bank ownership versus national control over banks via domestic ownership or management. While foreign bank ownership mitigated economic volatility in crises, marketized bank–state ties also limited or threatened to limit economic policy autonomy.Less
The paradox of financial control refers to the fact that while most governments resent or resist incursions on national bank ownership or management, European states with high levels of foreign bank ownership paid much lower costs through the recent financial crises than countries that had pursued banking sector protectionism. Europe is an ideal setting in which to investigate this paradox because extreme banking sector openness in the East coincided with banking sector protectionism in many western Eurozone countries. The otherwise homogenous institutional context of the European Union therefore revealed with precision the disparate effects of marketized bank–state ties through foreign bank ownership versus national control over banks via domestic ownership or management. While foreign bank ownership mitigated economic volatility in crises, marketized bank–state ties also limited or threatened to limit economic policy autonomy.
Rachel A. Epstein
- Published in print:
- 2017
- Published Online:
- September 2017
- ISBN:
- 9780198809968
- eISBN:
- 9780191847219
- Item type:
- book
- Publisher:
- Oxford University Press
- DOI:
- 10.1093/oso/9780198809968.001.0001
- Subject:
- Political Science, Political Economy
States and banks have traditionally maintained close ties. At various points in time, states have used banks to manage their economies and soak up government debt, while banks enjoyed regulatory ...
More
States and banks have traditionally maintained close ties. At various points in time, states have used banks to manage their economies and soak up government debt, while banks enjoyed regulatory forbearance, restricted competition and implicit or explicit guarantees from their home governments. The political foundations of banks have thus been powerful and enduring, with actors on both sides of the aisle reluctant to sever relations. The central argument of this book, however, is that in the world’s largest integrated market, Europe, political ties between states and banks have been transformed. Specifically, through a combination of post-communist transition, monetary union, and economic crisis, states in Europe no longer wield preponderant influence over their banks. In the East, high levels of foreign bank ownership have disrupted politically infused bank–state ties, while in the Eurozone, European Banking Union has supra-nationalized bank governance. Banking on Markets explains why we have witnessed the radical denationalization of this politically vital sector, as well as the consequences for economic volatility and policy autonomy. Contrary to expectations, marketized bank–state ties and elevated foreign bank ownership levels mitigated volatility in Europe’s recent economic crises. But marketized bank–state ties also limit national economic policy discretion. The findings from Europe have implications for other world regions, which, to varying degrees, have also experienced intensified pressure on their traditional models of domestic political control over finance.Less
States and banks have traditionally maintained close ties. At various points in time, states have used banks to manage their economies and soak up government debt, while banks enjoyed regulatory forbearance, restricted competition and implicit or explicit guarantees from their home governments. The political foundations of banks have thus been powerful and enduring, with actors on both sides of the aisle reluctant to sever relations. The central argument of this book, however, is that in the world’s largest integrated market, Europe, political ties between states and banks have been transformed. Specifically, through a combination of post-communist transition, monetary union, and economic crisis, states in Europe no longer wield preponderant influence over their banks. In the East, high levels of foreign bank ownership have disrupted politically infused bank–state ties, while in the Eurozone, European Banking Union has supra-nationalized bank governance. Banking on Markets explains why we have witnessed the radical denationalization of this politically vital sector, as well as the consequences for economic volatility and policy autonomy. Contrary to expectations, marketized bank–state ties and elevated foreign bank ownership levels mitigated volatility in Europe’s recent economic crises. But marketized bank–state ties also limit national economic policy discretion. The findings from Europe have implications for other world regions, which, to varying degrees, have also experienced intensified pressure on their traditional models of domestic political control over finance.
