Banking on Markets: The Transformation of Bank-State Ties in Europe and Beyond

  • Citation: Epstein, Rachel A. Banking on Markets: The Transformation of Bank-State Ties in Europe and Beyond. Oxford University Press, 2017.
    • Topics:
    • Business and Trade
    • Keywords:
    • bank–state ties
    • foreign bank ownership
    • post-communist transition
    • monetary union
    • European Banking Union
    • economic crisis
    • economic volatility
    • national economic policy autonomy

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.

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