BRUSSELS, 25 March 2016 – Capital markets can only complement the role of bank lending, according to the updated policy position recently published by ESBG – the European Savings and Retail Banking Group.
It notes in its March edition of ESBG Positions, an EU banking policy reference for the Brussels-based association, that although the European Commission insists that the Capital Markets Union (CMU) will firstly aim at benefitting SMEs, those benefits will be limited to specific market segments such as start-ups or established companies that might be tempted to switch from bank financing to capital markets financing.
The updated CMU position also digs deeper into the trade body's stance two specific areas –covered bonds and securitisation. ESBG supports the Commission's proposal to develop criteria for identifying simple, transparent and standardised securitisations. It shares the view that a functioning securitisation market – supplementing bank loans as a main financing instrument – is essential to support economic development, and for providing sufficient credit to companies, particularly SMEs. The Commission proposal excludes an important part of the securitisation market, however, which is necessary for the banking system to place parts of their credit risk exposure to professional investors: synthetic securitisation. Synthetic securitisations are particularly suitable for this purpose, since they only require comparatively straightforward contractual agreements – and no full transfer of title of the underlying loan receivables.
On the covered bonds front, ESBG foresees possible challenges to achieve a common harmonisation of covered bonds, one of them being the diversity of legal frameworks in the EEA, including insolvency and mortgage legislations across the European countries. Many European countries have already succeeded in establishing sound regulated covered bond markets. If there is to be a common European regulatory framework, this must build on best practice among national regimes, be in compliance with international standards, and not disrupt well-functioning markets.
CMU: Part of EU jobs and growth strategy
As part of the Juncker Commission priority to boost jobs, growth and investment across the EU, CMU – a key pillar of the Investment Plan – aims to tackle investment shortages head-on by increasing and diversifying the funding sources for Europe's businesses and long-term projects. The Commission's overall goal for the CMU is to create opportunities for investors, connect finance to the wider economy, and foster a more resilient financial system, with deeper integration and more competition. On 30 September 2015, the Commission adopted an action plan setting out 20 key measures to achieve a single market for capital in Europe. This action is accompanied by a set of initiatives that are part of the action plan
Alongside the action plan, the Commission unveiled a first set of measures to relaunch high-quality securitisation, and to promote long-term investment in infrastructure. In addition, the Commission announced changes to the Prospectus Directive before the end of the year, with a view to making it easier and less expensive for small and medium-sized companies to raise capital.
The document notes: "ESBG is convinced that it would not be in the interest of the European economy – especially in the markets that are strongly based on SME structures like the majority of continental Europe – to favour funding from capital markets over traditional bank lending. Not a policy of substitution but a policy of complementarity should be regarded as the best way forward in order to create a more competitive European Union."
Related policy positions
>> Capital Markets Union (Updated)
>> ESBG-UEAPME-FEE Joint Position
>> SME Financing
>> SME Supporting Factor
>> Study: EU, US Financial Systems