The financial crisis has reopened debate on the architecture of financial regulation and prudential supervision in the EU, calling into question the home country control principle that has prevailed since the mid-1980s. This article discusses how the growth of cross-border financial intermediation can best be regulated to limit the ensuing risks of financial contagion. It argues that a supranational supervisory system is now needed for some intermediaries, but that proximity to market actors at national level remains important. This points to a quasi-federal system as the way forward, but in constructing such a system account has to be taken of the diversity of Member State structures and preferences. The article concludes that even if a much more extensive EU-level competence is theoretically the optimal way forward, political considerations make it unlikely, suggesting that the crisis has broader implications for European integration
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