The fragility of independent financial supervision

Abstract

The institutional landscape of financial regulation in the United States (US) and the European Union (EU) is currently undergoing a divergent transformation, where the traditional paradigm of independence of financial supervision is being redefined by distinct political and constitutional pressures. While both the US and the EU once shared a normative commitment to the arm’s length model of technocratic governance, their current trajectories reveal a fundamental rift. The central argument of this article is that while the EU’s adoption of constitutional and quasi-constitutional safeguards fosters stable and predictable supervisory outcomes, the US model’s increasing responsiveness to political shifts, though arguably more democratic, inherently risks supervisory volatility. In the EU context, independence has evolved into a functional, supranational solution to the problem of governing a fragmented financial system. Conversely, in the US, this independence has devolved into a constitutional battleground over the legitimacy of administrative power and democratic control. [excerpt]