The aim of the EU’s Capital Markets Union (CMU) is to diversify funding
sources for Europe’s economy by facilitating more capital-markets financing. In
the EU, traditional bank loans still account for 80% of all financing, whereas
in the United States this figure is 25%. Moreover, at a time when regulations
are impacting banks’ balance-sheets in Europe–and their capacity to lend–it is
important that the CMU project move forward with greater speed and align CMU
implementation with that of banking reform. Otherwise there is a risk of a
funding squeeze: regulation is putting pressure on bank lending, but the CMU
infrastructure that would permit more funding via the capital markets is not
yet in place.
Among the key areas that need to be speeded up in
CMU discussions are securitisation, private placements, equity financing for
SMEs, and infrastructure financing. And it is important not to lose sight of
liquidity needs as CMU takes shape. A well-functioning market requires liquidity,
especially in difficult times. To ensure liquidity, market-making by banks is
vital. Measures that hamper market-making will result in reduced liquidity and
a less-efficient, fragmented CMU. Some existing measures indeed merit
reconsideration. These include the financial-transactions tax, especially if it
is not universally applied; and current or targeted arrangements regarding Net
Stable Funding Ratios, leverage ratios and capital charges for banks’ trading
books.
There is additionally the need to preserve a level
playing field among banks. The goal of CMU is not to replace banks, rather
enable them to contribute to an optimal allocation of savings towards
productive investment. The integrated business model of a number of European
banks (among them BNP Paribas) is a perfect response to CMU. The model offers
the benefits of an intimate understanding of SMEs and retail customers on the
one hand, and strong distribution platforms on the other. Given the CMU’s
ambitious plans, it is important that European banks which have the capacity to
both originate and distribute not be disadvantaged compared to non-European
banks. The beneficiaries will be Europe’s SMEs, issuers, investors, and indeed
the entire economy.