Maintaining the Universal Banking Model : An Institutional Theory Perspective on the Endogenization of a Transnational Post-Crisis Financial Market Reform

In the aftermath of the financial crisis, governments and regulators intended to strengthen financial stability by changing the regulatory architecture of banking and financial markets. One of the issues widely discussed was the question of whether the universal banking model, i.e. the possibility to combine trading and deposit-taking activities, should be restricted or prohibited by regulation. Relying on the theories of institutional maintenance work and the endogenization of law, this paper examines the rule-making process of the EU structural banking reform which ultimately did not lead to any final regulation. We show different rhetorical strategies employed by actors in the regulatory space and analyse how the views voiced by these actors successively entered the European regulatory proposals. Moreover, we reveal the important role that the establishment of prior national regulations on banking structure in some EU countries played in shaping the maintenance work in and the outcomes of the transnational rule-making process. Overall, our findings indicate an iterative interplay between endogenization and institutional maintenance work as endogenization is not only the result of successful maintenance work but also precedes and is part of institutional maintenance work itself