Banking Union and banking nationalism - Explaining opt-out choices of Hungary, Poland and the Czech Republic

The purpose of this study is to understand Hungary, the Czech Republic and Poland's opt out position from the Banking Union (BU). The Banking Union is compulsory for Eurozone member states and optional for non-Eurozone member states. From the Central and Eastern European (CEE) region only Romania and Bulgaria decided to join. First, we attempt to explain this fact based on structural characteristics of the CEE banking sectors, but we find no substantial difference between the opt-in and opt-out countries' banking sectors. Second, we look at the role of state capacity in maintaining a stable banking sector, and find that state capacity is a necessary condition for opting out. Finally, using Hungary as a case study, and the Czech Republic and Poland as further examples, we argue that these countries opted out because their governments' policy preference of banking nationalism conflicts with the BU's ideals.