Capital market is eurosystem ready for it?

Capital Market Union:Is Eurosystem ready for it?

What is it?

• No concrete or official definition

• The harmonization of rules across Member States in order to eliminate the barriers that prevent the integration of capital markets

What is not?

• Merger of European stock exchanges

• Reducing bank financing

Five Pillars

• Removing the remaining obstacles to free movement of capital

• Transparency

• Spreading best practices

• Standardisation

• Coordinating taxation

“Jobs, Growth and Investment” Package

• Improve the investment environment

• Long-term financing of the economy such as revival of Securitisation market

• Lowering the costs of raising capital

• Finding channels other than banks for companies' funding

Financial instruments

• Securitised bank loans

• Shadow banking

• Bonds

• Private placements

• Equity

• Venture capital

• Securities trading

Five main benefits

• Providing finance for the economy

– Sluggish growth rate– “EU Importance 2020” – Transport , Energy and

telecom sector - € 1 Trillion??– Banks are unable to finance after the crisis– Need for alternative financing options (Less

developed)– “Bank-Centric” Europe. Bank finances are four times

of its GDP. U.S only 80%– In U.S only 30% of the finance is from banks whereas

in Europe it is 70%

Five main benefits

• Helping to absorb shocks– “Bank-Centricity” magnified the original crisis– CMU can act as a shock absorbers

• Enabling more effective monetary policy – Quantitative easing – Example – US Federal Reserve, Bank of England

and ECB– ECB is prohibited from monetary financing– But, when annual inflation rate 0.3%, ECB bought

Asset backed securities

Five main benefits

• Creating more competitive markets– Bank Centric financial system which is not

competitive as it should be– In most of the member states, to five lenders

have a combined market shares of 60%– Banks finances well established business– SMEs or sectors which are in need of capital

are ignored

• Providing the UK with another good reason to stay in the EU

Challenges

• Long and complex legislative process

• A significant structural change for the European financial system (Time)

References• "A Capital Markets Union Could Be next Thing in EU's In-tray." | Reuters. 3 July 2014.

Web. 14 Nov. 2014. <http://uk.reuters.com/article/2014/07/03/uk-eu-markets-

idUKKBN0F814O20140703>.

• Abascal, María, and Lucía Rodríguez. "A Capital Markets Union for Europe: Preliminary

Reflections." Banco Bilbao Vizcaya Argentaria S.A. Web. 14 Nov. 2014.

<https://www.bbvaresearch.com/en/publicaciones/a-capital-markets-union-for-europe-

preliminary-reflections/>.

• Dixon, Hugo. "Unlocking Europe’s Capital Markets Union." Center for European Reforms.

CER, 31 Oct. 2014. Web. 14 Nov. 2014.

<http://www.cer.org.uk/sites/default/files/publications/attachments/pdf/2014/unlocking

_europes_capital_markets_union_hugodixon_15.10.14-9870.pdf>.

• Hill, Jonathan. "Hearings of European Commissioners-designate." Europarl. European

Union, 30 Sept. 2014. Web. 14 Nov. 2014.

<http://www.europarl.europa.eu/EPRS/Commissioner_hearings/EPRS-Briefing-538940-

Financial-Stability-Financial-Services-and-Capital-Markets-Union-FINAL.pdf>.

• Wilson, Karen. "Bruegel." Crowdfunding: Broadening Europe's Capital Markets. 10 Oct.

2014. Web. 14 Nov. 2014. <http://www.bruegel.org/nc/blog/detail/article/1456-

crowdfunding-broadening-europes-capital-markets/>.

• OECD (2013), Science, Technology and Industry Scoreboard 2013, calculations based on

PwCMoneyTree, EVCA/Thomson Reuters/PwC and EVCA/PEREP_Analytics