The convoluted making of a centralised bank recapitalisation arsenal in Europe

• Robert Schuman Centre for Advanced Studies
• the Robert Schuman Centre Seminar Series

Join Pierre Schlosser as he presents his recent research on the development of Europe's bank recapitalisation framework and its institutional evolution.

European integration is a non-linear process shaped by major leaps forward, incremental institutional changes, and occasional setbacks. The evolution of Europe's bank crisis management arsenal exemplifies this trial-and-error process. The construction of a bank recapitalisation framework spanned more than a decade (2012–2023), involving repeated institutional design efforts that gradually shaped a centralised system.

Drawing on the classification introduced by Padoa-Schioppa, this article categorises bank crisis management into three dimensions: private money solutions, central banking money solutions, and taxpayers’ money solutions. It then examines the tedious, haphazard, and convoluted development of a centralised bank recapitalisation arsenal in Europe.

By tracing this gradual institutional deepening, the study identifies key instrument limitations and weaknesses, which have contributed to institutionalisation while failing to produce a stable and complete regime. The article applies the ‘failing forward’ theoretical framework (Jones, Kelemen, and Meunier, 2016 & 2021), which combines neo-functional and intergovernmental explanatory factors. In particular, it tests the assumption that institutional progress is often dictated by lowest common denominator bargains, offering insights into the evolution and constraints of European financial governance.