Centripetal dangers of EU-level banking regulation

Financial Times (European edition), 15 June 2012, letters, page 8. 'Centripetal dangers of EU-level banking regulation' From Prof Nicholas Dorn. Sir, One does not have to be a Little Londoner – or a Greater Guernsian (Philip Stephens, June 13) – to hope that European Union banking regulation falls short of full architectural and legal integration at EU level. Centripetal dangers would only be reinforced, institutionalised and set in stone by deeper embedding of bank regulation at EU level. Regulation does construct markets, so one should think hard about what one wishes for. Surely the two financial crises, 2007-09 and 2010-present, underline the dangers of too-connected-to-fail and too-similar-to-fail, first in relation to financial markets and then in relation to sovereign-bank linkage. There are good reasons for pausing on the track that passes through integration of all 27 EU member states. As an alternative, EU arrangements that are bipolar or even multipolar would enhance diversity and flexibility in responding to crises. José Manuel Barroso now wearily contemplates a bipolar arrangement: converged bank regulation for eurozone countries, with the UK standing aside (“Barroso upbeat as political winds change”, June 12). One could also imagine multipolar arrangements, with a eurozone pole and two or more other poles, retaining a diversity of regulatory regimes and market profiles. To entertain such visions is not to argue for subsidiarity for its own sake; rather, it addresses the need for markets to be made more robust through differentiation, encouraged by variety in regulation. That would interpret the EU project in liberal political terms, instead of liberal market terms. Jean-Claude Trichet, speaking at my university this month, suggested that the European parliament should debate and approve proposals within an EU banking union – at the cost, however, of national parliaments being overruled. One may wonder where all this is heading. Given the lack of a global parliament, who would give legitimacy to regulatory and resolution decisions having international as well as regional ramifications? The ever-upward transmission of decision-making effectively sidelines democracy, which is one tragedy. It goes hand in glove with too-connected-to-fail, which is another tragedy. It is time to insist on the merits of legal, architectural and functional separation in financial regulation. Nicholas Dorn, Erasmus School of Law, Rotterdam, The Netherlands [Above is the full text as published in the hard copy of the newspaper. The web version omits ‘centripetal’ from the title.]