The Capital Markets Union (CMU) launched in February 2015 aims to create deeper and more integrated capital markets in the 28 Member States of the EU.
With this key initiative, the Commission is looking at ensuring greater diversification in financing sources, reducing fragmentation and dismantling barriers in financial markets, strengthening cross border capital flows and reduce the cost of raising capital, particularly for SMEs.
Since the beginning, the EBF has been supportive of the CMU initiative and welcomed the opportunity to comment on the Commission´s Green Paper on CMU. European banks believe that the new Commission should focus on growth and jobs. Further progress towards more integrated European capital markets can be an important factor that brings Europe back to a sustainable growth path. Europe needs efficient and dynamic capital markets alongside a strong and stable banking sector. This makes sense from both a growth and financial stability perspective.
Additionally, stronger capital markets can potentially unlock more investment for companies, in particular for SMEs which are a key driver of growth in the European economy. The CMU in the sense of a completely integrated market should therefore achieve three objectives, namely:
- It should increase the efficiency of the capital market by bringing investment opportunities for savers and investors more into line with the demand for capital. This can be achieved by broadening the opportunities to diversify corporate finance and expanding the range of investments open to savers and investors.
- It should make risk allocation easier by improving cross-border investment opportunities. This would help to better absorb the effects of economic shocks on individual Member States.
- It should ensure that the capital market and the banking sector each contribute an appropriate share to funding the economy. This could make the economy more resilient to economic shocks.
In addition, the EBF believes the CMU project requires joint efforts to be successful. The EBF is willing to contribute to the project and put forward 10 tips we believe could make the CMU a successful experience:
- Keep the focus on removing obstacles and barriers to growth. We very much welcome the new Commission’s focus on growth and jobs, and the commitment to better regulation. The main aim of CMU must be to boost the European economy.
- Ensure market liquidity. If there is no liquidity, there will be no market. Banks are key liquidity providers for European capital markets. CMU needs to protect the liquidity we already have and at the same time encourage it do develop further.
- Guarantee a level playing field. Allowing market participants conduct similar activities to banks under lighter rules will disrupt the competition in financial markets. Equal terms are required for all those who put money into the economy, both from the EU and outside the EU.
- Address fragmentation in Europe’s financial services markets. Financial integration is tremendously important for the European economy. For example, Member States’ national securities laws need to be further harmonised to reduce fragmentation.
- Correctly implement legislation that has already been adopted. In particular this is important for MiFID II and MiFIR, the Single Rule Book and the Banking Recovery and Resolution Directive. Well-calibrated and coherent implementation of this legislation will contribute to the development of CMU in Europe. This legislation should complement rather than complicate CMU.
- Increase investors’ confidence in financial markets. The Commission must ensure that information provided to investors is relevant and reliable. The EBF also firmly believes that financial education is crucial to improving trust in financial markets, and that concrete steps should be taken to raise the level of financial knowledge in the EU.
- Enhance the attractiveness of securitisation as a tool to increase the availability of funding for SMEs.
- Avoid to generate regulatory uncertainty. Banks as well as investors and markets need certainty on the limits of regulation. After the avalanche of new rules that have been introduced in recent years, it is becoming difficult for financial market participants to keep up with the continuous flow of new regulation.
- Carefully consider the impact on CMU of introducing a Financial Transaction Tax. An FTT would easily unwind the benefits of a capital markets union where capital transactions are taxed. If we are not careful, this plan could harm liquidity and weigh down capital markets.
- Reconsider the need for a regulation that aims to automatically split universal banks as this will negatively impact a bank’s capability to support the economic activities of its clients and the provision of liquidity to capital markets. Existing measures already address excessive risk taking by banks and where necessary allow for targeted supervisory intervention in banks’ business structures to safeguard financial stability.
EBF contact: D.DeGennaro@ebf-fbe.eu