The Institutionalist Idea: Alternative Explanatory Approaches

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Therefore, historical institutionalists have developed a permissive condition and a productive condition which jointly determine a critical juncture. The core of the permissive condition is that the window of opportunity opens and change becomes possible, whereas the main aspect of the productive condition is that there is a high range of policy options available and that policy makers have a higher influence on the outcome and are more likely to trigger a path-dependent process (Soifer 2012: 1575ff.). Furthermore, a critical juncture can also be a catalyst meaning that it is actually required to set off a causal chain of action. In physical processes chain reactions are initiated by the decay of atomic nuclei and quite similarly some political event – a critical juncture – can be the cause which triggers a certain reaction and outcome in the political process (Lebow 2007: 109).

This could be of interest for the assessment of the case of the Banking Union. After all, the Banking Union was created in an environment with a multitude of fast-paced events due to the financial crisis. Maybe there was a critical juncture which actually triggered the creation of the SSM or SRM. Possibly the HI can complement the combined functional-political approach by offering an explanation for an issue which the combined approach misses to account for. In the case of the Banking Union, the following would have to be observed to state that a critical juncture was at work:

Observable Implications for the Permissive Condition:

 Period of Stability: No major policy changes took place in banking supervision or banking resolution prior to the creation of the SSM and SRM.

 High Level of Uncertainty: The event has to be rare and its outcome for banking regulation has to be unclear. This could be observed if policy makers were highly indecisive about how to solve a problem in the realm of banking supervision or resolution. At the same time the window of opportunity which is created thereby would have to be narrow so that policy makers would have to decide quickly on the SSM or SRM issues.

Observable Implications for the Productive Condition:

 High Range of Policy Options: The contingent event makes a high range of policy options for supervision and resolution available which would not be feasible in the usual political environment. Additionally, politicians do not have a specific political preference at the beginning.

 High Influence of Decisions: It is more likely than under usual conditions that the choices of policy makers will affect the outcome (for example that a new mechanism for supervision or resolution is created) and that this will even trigger a path-dependent process and thereby determining the future of EU banking regulation.

If there was a critical juncture before the SSM or SRM this would mean that it at least influenced the SSM’s or SRM’s creation by making change possible. Furthermore, a critical

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juncture would also be a catalyst for the SSM or SRM if it could be confirmed that without the critical juncture, the SSM or SRM would not have been created at all.

Another aspect of historical institutionalism which should be kept in mind is the path-dependent evolution of institutions. Historical institutionalists suggest that regulatory bodies develop by previous institutions being reformed and remodeled due to trial-and-error insights (Coen/Thatcher 2008: 808; Gocaj/Menier 2013: 240). What they mean is that a new regulatory body always depends on what has happened before in the particular regulatory policy field. And if it is observed that an institution which already existed is not functioning properly it is often redesigned instead of abolished. HI thereby offers a dynamic explanation for how and why institutions evolve. For historical-institutionalist supporters it is crucial that institutions change in such path-dependent ways because present structures strongly constrain and shape new ones (Pierson 1994; Coen/Thatcher 2008). This possibly also adheres to the Banking Union: After all, especially the SSM was not created from a tabula rasa. The intergovernmental network CEBS got transformed into the EU level agency EBA and eventually, supervision was completely delegated to the EU institution of the ECB. Maybe this was because member states had triggered a path-dependency by deciding for the CEBS and/or the EBA and thus they were forced to implement a Banking Union. Path-dependency could be observed if the following had happened: Banking problems occurred in the Eurozone and therefore some kind of regulatory body was created. However problems emerged again.

Consequently, policy makers have to keep in mind what they did before and derive thereof what to do next. They explicitly learned from previous mistakes or deficiencies.

Consequently, they have to stick to a path-dependent way and build upon or rather improve their former institutional choice.

The Sociological Institutionalism: Isomorphism and Mimicry

While for SI institutions are just as important as for the HI, it mainly draws on institutional isomorphism and mimicry. According to DiMaggio and Powell (1983) isomorphism is a constraining process. This process forces that one institution resembles other institutions that face the same kind of environmental conditions (DiMaggio/Powell 1983: 149). That means, if agencies are the typical tool used in banking regulation across the EU, a newly created banking regulation institution would also be an agency or would become an agency over time.

According to this idea, an agency is created on the EU level because agencies are already in operation for example on the national level and policy makers have certainty as to how they work and how they will affect their interests (Yesilkagit/Christensen 2009: 71). A specific

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form of institutional design has become seen as legitimate in the EU and consequently a new regulatory body is created which shows this institutional design. Here, culture plays a crucial role: “It contains the bedrock cognitive similarities that cause people to share perceptions of the world around them” (Aspinwall/Schneider 2000: 8) and shapes the idea of what kind of institution is legitimate or adequate in a specific context. However, this also means that organizations might be created due to legitimacy or normative considerations rather than efficiency outputs (Finnemore/Barnett 1999: 703).

Egeberg, Martens and Trondal (2012) as well as Groenleer (2009) suggest that especially the creation of agencies is actually a trend in public policy, a fashionable idea within the realms of the so called new public management. In a lot of Western EU countries agencies have developed over the last few years. As a consequence, they became seen as legitimate and actors also started to create them on EU level – they mimicked the national agencies. The fact that EU agencies popped up within a fairly short period of time in the 1990s and post-2000s illustrates the strength of fashionable ideas about legitimate and efficient government (Egeberg/Martens/Trondal 2012): Before the 1990s, other forms of governance were more popular, but this trend shifted and thus when agencies became popular and were seen as a successful governance tool, a lot of them were created within the EU.

At first sight, this approach does not seem appropriate for explaining the creation and design of the European Banking Union since the Banking Union consists of two pillars with different designs. If the reason for design had been that agencies were fashionable, it would be only logical to assume that the whole Banking Union was designed as an agency. However, this is not the case, since at least one part of regulatory authority has been delegated to the ECB – which is not an agency. It thus seems like the sociological cultural argument cannot apply for the creation and design of the Banking Union.

However, when researching a case like the Banking Union, it is crucial to also control for other possibly explanatory variables. Especially DiMaggios and Powells (1983) mimetic isomorphism should be kept in mind: They state that when the environment creates symbolic uncertainty, organizations are likely to imitate other successful organizations (DiMaggio/Powell 1983: 151f.). If it is observed in the case of the Banking Union, that environmental uncertainty due to the Eurozone crisis led to the Banking Union being built upon the example of other successful – maybe national – regulatory bodies, the SI approach could nevertheless offer some explanatory value.

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5 Methodological Approach and Research Design for