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Abstract

To explain when and how finance wins, political economists have studied the financial sector’s instrumental power to lobby policymakers and the structural power that results from its central position in the economy. Focusing on the rise and resilience of market-based banking in the euro area, this paper develops the concept of infrastructural power as a third, complementary variant. Theoretically, the argument is based on the observation that state actors, in addition to acting on markets, also act in markets. Central banking is the clearest manifestation of such market-based state agency. To the extent that the central bank depends on financial markets to implement and transmit its monetary policy, financial market actors enjoy infrastructural power. The paper analyses the origins and manifestations of this infrastructural power by tracing the alliances the European Central Bank has formed with the two key pillars of market-based banking, the repo and the securitisation markets. This infrastructural entanglement between market-based banking and market-based central banking has been both an enabling condition and a key driver for the Capital Markets Union project.