Between a rock and a hard place : the tensions between banking competition and financial stability within EU resolution law

Abstract

This thesis examines the impact of the EU resolution framework on the way in which the twin goals of banking competition and financial stability are pursued. It reveals that the tension between these two goals, which was present during the European Financial Crisis, is being attenuated under the current framework. In Part I, the thesis shows that during the European Financial Crisis (2008-2014), EU policymakers were caught between a rock and a hard place. They could achieve either a competitive or a financially stable EU banking sector, but they could not choose both. This policy dilemma was rooted in the long-standing economic debate about the relationship between banking competition and financial stability. Part II shows that after 2014, EU policymakers revisited the stabilityoriented strategy that was in force during the European Financial Crisis. The creation of the Banking Union in 2014, which included the implementation of the EU resolution framework, challenged the competition-stability trade-off. The resolution regime reveals the intersection between these two policy objectives, and contributes to achieving coordination between them. Overall, the thesis investigates whether, from an empirical perspective, the EU resolution framework successfully reconciles the policy objectives of minimising the use of public funds, thereby creating a level playing field among banks, and protecting financial stability. Through a sample of quantitative and qualitative data, the thesis critically assesses whether the EU resolution framework has fulfilled this twofold purpose, and whether it has attenuated the policy dilemma between banking competition and financial stability. The findings demonstrate that the EU resolution framework has mitigated the tensions between these two policy goals in the EU banking sector.