Banks’ Structural Power and States’ Choices on What Structurally Matters: The Geo-Economic Foundations of State Priority toward Banking in France, Germany, and Spain*

• Author: Elsa Clara Massoc
• DOI: http://doi.org/10.1177/00323292221125565
• Published date: 01 December 2022
• Date: 01 December 2022
• Subject Matter: Articles

Banks’Structural Power and

States’Choices on What

Structurally Matters: The

Geo-Economic Foundations of

State Priority toward Banking in

France, Germany, and Spain

*

Elsa Clara Massoc

Goethe University Frankfurt

Abstract

Since the 2008 f‌inancial crisis, Europe’s largest banks have largely remained unchallenged.

Is this because of the structural power banks continue to hold over states? This article

challenges the view that states are sheer hostages of banks’capacity to provide credit

to the real economy—the conventional def‌inition of structural power. Instead, it sheds

light on the geo-economic dimension of banks’power: key public off‌icials conceive the

position of “their own”banks in global f‌inancial markets as a crucial dimension of state

power. State priority toward banking thus results from political choices as to what struc-

turally matters most for the state. Based on a discourse analysis of parliamentary debates

in France, Germany, and Spain, as well as on a comparative analysis of the implementation

of a special tax on banks, this article shows that power dynamics within states largely

shape political priorities toward banking at both domestic and international levels.

Keywords

structural power, states, banks, geo-economics, institutions

Corresponding Author:

Elsa Clara Massoc, SEPS-HSG, Büro 52-5106, Müller-Friedberg-Strasse 6/8, 9000 St. Gallen, Switzerland.

Email: elsaclara.massoc@unisg.ch

*This special issue of Politics & Society titled “The Structural Power of Finance Meets Financialization”fea-

tures an introduction by Florence Dafe, Sandy Brian Hager, Natalya Naqvi, and Leon Wansleben and f‌ive

articles that were presented as part of the workshop series held at and funded by the Department of

International Relations, London School of Economics, November 2019, organized by Natalya Naqvi and

Florence Dafe, and at the Max Planck Institute, Cologne, June 2021, organized by Florence Dafe, Sandy Brian

Hager, Natalya Naqvi, and Leon Wansleben.

Article

Politics & Society

2022, Vol. 50(4) 599–629

© The Author(s) 2022

Article reuse guidelines:

sagepub.com/journals-permissions

DOI: 10.1177/00323292221125565

journals.sagepub.com/home/pas

In the immediate aftermath of the global f‌inancial crisis, most politicians and

policymakers claimed to be on the same page as the chief economist of the

European Central Bank, who declared in 2009 that “the simple statement that ‘if

banks are too big to fail, they are too big to exist’is a reasonable rule.”

1

Twelve

years later, the size and business models of Europe’s largest banks have largely

remained unchallenged. Notably, nine Eurozone banks are still listed as globally sys-

temic banks according to the Bank for International Settlements. Those banks have, for

the most part, maintained or even expanded their market operations on a global scale,

and the trend is moving toward further banking consolidation. Clearly, reducing the

size and complexity of the largest European banks has not been a political priority.

Is that because banks continue to hold structural power over states?

Banks could be considered collectively as the poster child of structural power as it is

traditionally conceived: governments are structurally dependent on banks because the

health of the whole economy depends on their very capacity to provide credit to f‌irms.

2

Banks thus typically occupy a “privileged position”in capitalist societies.

3

The 2008

f‌inancial crisis and subsequent bank bailouts have renewed scholarly interest in the

study of structural power. Postcrash literature in international and comparative political

economy has stressed the continuation of banks’structural power, while also tackling

the criticism that the original accounts of structural power developed in the 1970s were

too deterministic. Scholars have thus pointed to actors’strategic intent, varieties in

banks’and governments’organization, political salience, or even policymakers’per-

ceptions to explain the observed variations in the mechanisms and outcomes of

banks’structural power across times and spaces.

4

There is one point though where the recent literature on structural power has not

differed from the original corpus: scholars continue to assume that the source of

banks’structural power lies in its unique capability to provide credit to the real

economy. This article challenges the idea that state actors’motivation to promote

their large banks lies in the “functional”role of those banks in facilitating productive

investments. European banks’business models have changed dramatically. Most

notably, they had signif‌icantly developed their market-based activities before the

crisis, giving rise to what Hardie et al. have called “market-based banking.”

5

Yet, evi-

dence that the development of market-based banking has increased the provision of

credit to nonf‌inancial f‌irms (esp. small and medium enterprises [SMEs]) or more gen-

erally has fostered economic growth is, at best, very scarce. In fact, we have accumu-

lating evidence about the undesirable social and economic implications of the growing

marketization of banking.

6

Meanwhile, nonf‌inancial f‌irms (NFCs) have further devel-

oped access to sources of funding other than bank credit.

7

Ultimately, because they

have become dependent on the markets for their own funding, banks that were formerly

autonomous in their lending decisions have undermined their f‌inancial power in

lending to f‌irms. The fact that large globalized banks still provide some credit to the

real economy does not per se justify the benevolent position of states toward them.

This article thus tackles the crucial question posed by Dafe et al. in the introduction

of this special issue. If the power of banks is no longer (or at least less) predicated on

the activity of facilitating real economic investment, what then is the basis for their con-

tinuing structural power?

600 Politics & Society 50(4)