When in 2011 the financial market crisis turned into a debt crisis affecting not only banks and insurance companies but also entire countries, the negative consequences of the 2007/2008 crisis were not even got over. Governments in Europe and other regions have to prevent the collapse of whole economies or even the entire euro zone. Facing new challenges, the political answers to the crisis before are almost forgotten and the implementation of new regulation is hardly recognized publicly. The same applies to the failed reform of the German financial market supervisory system. With regard to supervision, the German government decided to keep the status quo ante before the crisis although the modification of the system had been a main topic on the political agenda for more than one year. With the crisis on the climax, the government announced to improve regulation and supervision for more financial market stability in the future. At this time, the crisis brought the state in and paved the way for government interventions in market processes. In fact, it was even possible that banks--like the German Hypo Real Estate (HRE)--became state-owned after their insolvency due to the threat of contagion and the collapse of the financial system (Altvater et al. 2010). And although some political reactions show "patterns of symbolic policy reform" (Mugge et al. 2010: 314), the violation of a public good, namely the stability and integrity of the financial system including aspects of consumer protection, put forth the agreement that public regulation and supervision must improve. Therefore, political actors reacted in two ways. First, with measures in regulation, this is the rulemaking concerning risk based capital requirements and other restrictions for the business of the financial industry, and second, with measures in supervision, this is the implementation of regulation by special authoriies (Handke 2010b). The intended reform of supervisory structures in Germany and the related political non-decision are central issues of this article.
The German single supervisory authority BaFin (Bundesanstalt fur Finanzdienstleistungsaufsicht) and similar agencies in other European countries are crucial for the success of financial market regulation. They are not only charged with the supervision and implementation of rules and standards, but they also take part in the establishment of risk regulation within transnational bodies like the European Insurance and Occupational Pensions Authority (EIOPA) or the Basel Committee on Banking Supervision. Further, on the national level, they have to scrutinize internal risk models of companies. In testing these models, supervisory authorities do not only implement rules that cope with the risk of financial businesses, this is the mere risk regulation, but they also have to deal with the severe phenomenon of model risk or model uncertainty. This is "a new risk category [which] can hardly be overestimated" (Sibbertsen et al. 2008: 66), as it covers the mathematical problems of abstracting from reality, to derive risk models predicting the probability of credit default risk. Therefore, the boundaries between risk regulation and supervision are blurring and a supervisory agency like BaFin is involved in both.
Financial market regulation is typically determined by political considerations of governments and "there is little reason to expect that regulatory change will in fact take a form that produces the outcomes so often claimed by its advocates, such as allocative efficiency [...] or, for that matter, financial stability" (Perez/Westrup 2010). Regulatory reforms are not only a function of political interests, but moreover, they are hard to develop and cannot be established over night, since financial market rules are very complex. These two aspects led to the national governments' agreement to make joint decisions in regulation, to coordinate their activities internationally and to construct new rules in a cooperative way between European member-states, the United States of America and other industrial countries (FSB 2009). National politicians recognized that "[financial] instability does not respect borders while uncoordinated or competing national solutions may make things worse--as they have in the past" (Underhill/Zhang 2010:291f). With the referral to the intended international cooperation, national governments shift regulatory tasks to a higher political level and take it away from national politics. The German government did not push new rules, but followed European steps--e.g. with the implementation of the directive on credit rating agencies--without setting the pace in regulation. On the national level the Financial Market Stabilization Act (Finanzmarktstabilisierungsgesetz), proposals for better market regulation via strict capital requirements, and the so-called Restructuring Law (Restrukturierungsgesetz) have been implemented--at least partly.
By proposing institutional reforms for supervisory bodies, the government early demonstrated the capacity and willingness to act. Nonetheless, those plans failed as political agreements and the unanimity to reform the institutional design of German financial market supervision persisted only during the acute crisis. Empirically, supervisory reforms differ fundamentally among the European member states. Some countries like Greece, Lithuania and Slovenia shift competences from their supervisory agencies to the national banks or even abolished their sectoral supervisory authorities. On the European level three new largely autonomous European Supervisory Authorities (1) (ESAs) have been established in early 2011. In contrast, the German supervisory system remained unchanged despite some intended reforms. This system still consists of the single supervisory authority BaFin--as a subordinate agency of the Ministry of Finance (BMF)--and the German central bank. Whilst BaFin is responsible for the entire securities and insurance sectors, the supervision on banks is a split competence of BaFin and the Deutsche Bundesbank. Especially the improvement of the institutional setting in supervision was a central project of German financial market policy. In the end of 2010, however, the ruling coalition decided to keep the status quo ante in most parts and to maintain a supervisory structure with split competences between BaFin and the Deutsche Bundesbank (Handelsblatt 2010b).
This article will show why political asseverations did not materialize into hard financial market policies and why this fact should not be traced back to the simple shift of actors' opinion. The underlying reasons are closely linked to the influence of well-organized business interests, the seconding of clientele party politics and the self-serving orientation of executive bodies. The coincidence of party politics, (fragmented) business lobbyism and the dissension between governmental bodies led to a political deadlock, which admitted hardly any policy learning or institutional change. Utility maximizing actors' strategies in financial market policy, which can be characterized within the framework of rational choice institutionalism, retarded political processes with the result that decisions were procrastinated. Political actions and decisions on plans for regulatory and supervisory reforms lost their touch with the crisis and were discarded. Consequently, it can be observed a rigidity of institutions--these are formal and informal rules (Hall/Taylor 1996)--which is in sharp contrast to other cases like the BSE crisis. Instead of a significant modification of institutions, there is only slight and incremental change, which can be traced back to cost-benefit calculations and strategic orientations of rational actors possessing some veto power. The guiding approach is the rational choice institutionalism (Hall/Taylor 1996), which helps to explain why institution are resilient to temporary external shocks and crises (see also Streeck/Thelen 2005; Streeck 2009; Van der Heijden 2011; Farell/Newman 2011). Theoretical assumptions are complemented with own empirical data. Despite some problems to make competent actors willing to talk about financial market policy during the crisis, in 2010 eight structured interviews, lasting between 30 and 90 minutes, have been conducted with representatives of BaFin, the Bundesbank, the industry and political parties in parliament. The article is structured into three parts, in which empirical data is combined with theoretical interpretations of financial market policy processes.
In the first section, the immediate political reactions and plans for supervisory reforms in the aftermath of the crisis are discussed. The models for new supervisory structures are not judged in reference to their appropriateness, but they are just analyzed in the way of entering the political agenda and becoming a political choice. In the second section, the focus lies on the conditions under which policy ideas hit politics. It will be illustrated how German financial market policy is influenced by a special set of institutions and self-interested actors. These actors are portrayed as rational utility maxi misers, pursuing individual interests on regulation and supervision as their long-term maxim. The last section combines the policy analyses and the theories of rational action. In doing so, the article offers an explanation for the political deadlock in German financial market policies, which is the result of the impossibility to find a common preference for supervisory models.
2 Political Reactions to the Crisis
When the economic and financial market crisis culminated in 2008, the German government urgently issued a guarantee for private savings (Manager Magazin 05.10.2008). This step caused a psychological effect and re-built confidence in the German financial sector. However, this public warranty did not solve the problems of financial...