Financial market regulation: crisis-induced supranationalization

This article reviews the crisis-induced reforms of financial market regulation in the European Union (EU) from the perspective of the joint-decision trap and the orders of change frameworks. It argues that although the legislative response of the EU was quick and substantial, most reforms were lower-order changes that expanded existing regulatory tools and introduced several new ones. Only the banking union can be classified as a paradigmatic change, because its adoption required overcoming a long-lasting joint-decision trap. The crisis had changed the default condition of this trap by threatening a Eurozone break-up, which induced member states to reconsider their policy preferences and accept the supranationalisation of banking supervision that they have been refusing for two decades. Therefore, the lasting institutional consequence of the crisis will be the empowerment of supranational actors, especially the European Central Bank.