The Rise and Stall of EU Macro‐Prudential Policy. An Empirical Analysis of Policy Conflicts over Financial Stability, Market Integration, and National Discretion*

The 2007–09 financial crisis appeared to demonstrate the need for a strong, supranational EU macro-prudential policy framework prevent similar future disasters. implemented framework, however, is neither. It highly complex, involving many constraints on use of instruments. also one principal areas national discretion in banking regulation. To explain this, I build ‘financial trilemma’ thesis which holds that there are inherent tensions between pursuing stability, integration and policies. Supranationalizing proved difficult due lack consensus how measure systemic risks because distributional consequences involved. This increased tension stability integration, as policies could constrain cross-border finance they be misused competitiveness considerations. Key actors disagreed goals prioritize, with bargaining leading convoluted framework.