Capital Markets Union: what is at stake?

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The Capital Markets Union (CMU) project will be one of the biggest initiatives of the new European Commission led by Jean-Claude Juncker, President of the European Commission. From 1 November 2014, Jonathan Hill, European Commissioner for Financial Stability, Financial Services and Capital Markets Union, has been tasked with building a new path for financing the European economy through securities offerings, which will offer Europe a more diverse and competitive financial sector. To serve this aim, parts of the European Commission were reshuffled to form the new Directorate-General for Financial Stability, Financial Services and Capital Markets Union.

How will it work?

The CMU should be seen as a set of initiatives designed to develop alternative sources of finance and to let capital flow freely across the EU. The CMU comes as a logical next step following the Banking Union reform. While the aim of the Banking Union was more to develop a single supervisory and resolution framework among Eurozone countries to ensure financial stability, the CMU by contrast is focused on stimulating sluggish capital markets and developing new funding instruments for the EU economy. Unlike the Banking Union, the CMU will cover all 28 member states as part of a broader EU-inspired reform agenda.

The EBF sees the CMU as a complementary tool to bank funding. While the US relies on its capital markets for a majority of financing (see figure below), the expansion of underdeveloped equity and credit market segments in the EU will complement the current offering of bank financing and will provide more options to European companies looking for investment.

CMU graph

Source: Yves Mersch: SMEs, Banking Union, and securitisation – exploring the nexus, November 2013


Why European banks have a central role to play?

By helping investment in the real economy, long-term engagement and relationships with borrowers, but also by bringing new investors to market, banks bring a key contribution in promoting long term financing in EU capital markets. In that regard, the intermediating role of commercial banks should be preserved. More developed capital markets are perfectly consistent with a prominent and well-functioning banking sector. This is particularly relevant in the context of the ongoing discussions on Banking Structural Reform, which could clearly hamper the success of the CMU’s core initiatives. The separation of market-making activities out of the universal banking model would increase the cost in corporate capital markets and will lead to adverse effects on the financing of the EU economy.

European banks are ready to engage in the development of the CMU. This project will play an important part in boosting growth and employment in Europe. In early 2015, the European Commission is expected to release a green paper consultation on the CMU. This consultation is expected to include, among others, investor protection measures, and will seek to remove obstacles to cross-border investments, notably the so-called Giovannini barriers, on which the EBF has been very active as to market barriers. This will then enable the Commission to elaborate a comprehensive action plan with measures to take the CMU project forward.

EBF contact: Simon Pettinger ( and Olivier Thomas (