Good morning ladies and gentlemen.
It’s a great pleasure to be here, right at the start of my term as European commissioner. What’s particularly nice about today is that I get to give a speech in Brussels without the audience voting at the end on whether or not I can have the job!
At least they promised me there wouldn’t be a vote …
What better way to start my mandate than to come to an event that brings together many of the things that will define it:
How to kick-start growth.
How to bring together public and private funding.
How to increase the options businesses have for their financing.
And how to get our economies back on track for the longer term.
So thank you to Pier Carlo Padoan for co-hosting this event as part of the Italian presidency. And thank you for bringing together such a great list of speakers.
Let me start by setting out the general approach I want to bring to the job.
Clearly, good regulation underpins financial stability. It was a lack of regulation that contributed to the financial crisis. But right now, there is something else that threatens financial stability: lack of growth. President Juncker has rightly put jobs and growth at the top of his priorities. Therefore, as Commissioner, I will be looking at everything I do through the prism of jobs and growth.
Of course there is regulatory risk that will need to be addressed. We know that there are many measures stemming from legislation already passed that I will need to introduce, and indeed to implement an internationally agreed agenda.
I am not here today to say there will be a big bonfire of existing regulations in the name of growth. There can be no going back to the old, pre-crisis, ways. And equally, if we find wrong doing in the financial services sector, whether it is manipulating the market, or pulling the wool over the eyes of unsuspecting customers, the system should come down on perpetrators like a ton of bricks.
But we should not need the volume of new legislation which the crisis called forth.
And I do think that it is only common sense to take a step back after five busy years of legislating in crisis conditions and ask ourselves this question: have we always struck the right balance between reducing risk and encouraging growth?
If the evidence tells us that we haven’t always got the balance exactly right, we should be self-confident enough to make adjustments.
There may be areas where we identify gaps; there may be areas where we need to fine tune to make investment flows easier.
What's more, I think we should look, not just at individual measures where reviews are, already, written in to European legislation, but at the cumulative effect of the different pieces of legislation.
I am also conscious that businesses need regulatory stability and consistency to plan ahead and make decisions to invest.
To grow, they need to focus on developing their product lines; expanding their customer base; getting an edge on competitors.
We should not want board meetings to be spent just looking at compliance tables. But by the way, accepting responsibility for high standards is not in my view the same as mere compliance. It's the culture of a business that is most important, not a box-ticking mentality.
So I am clear: it is in all our interests to have a successful, competitive financial services sector. We do not make our economy stronger by making our financial services weaker. I want financial services to be seen as part of the economic mainstream, not cut off from society at large. But to be part of the mainstream, it needs to be a sector that is transparent. Complexity for its own sake – in whatever area – is usually a sign of a sector becoming divorced from the rest of the world.
The financial sector needs to explain more to the public what it does and how it supports the economy as a whole. If the challenge for me and other regulators is how to strike the right balance between managing risk and growth, my challenge to the industry is to engage with consumers and businesses and our wider society.
If you can do that, you will find in me someone who is prepared to champion the contribution you make to growth and jobs.
Priorities for my term of office
So if that is the approach I will bring, what are the immediate priorities I have set myself?
The first will be to implement what has already been agreed. And this will be no small feat, with over 400 delegated and implementing acts yet to be adopted to put flesh on the bones of rules like MIFID 2, Solvency 2 and CRD 4.
And of course I also want to push forward with delivering the banking union, one of our most ambitious projects. Work is underway to establish the Single Resolution Board; preparations are being made to build up the Single Resolution Fund. We now need to complete the task.
In this context, I would like to pay tribute to the work of Elisa Ferreira and her colleagues in the European Parliament in helping to prepare the Banking Union.
And I am delighted that Danièle Nouy has been able to join us today, just two days after taking office as the single supervisor.
And so shortly after completing the mammoth comprehensive assessment exercise – which was the most complete, transparent and rigorous that European banks have ever faced.
The results confirmed how much more resilient European banks now are and how much they have recapitalised – by over 200 billion euros in the last year alone.
The capital ratios of EU banks are now at 12%, similar to levels in the US.
And the vast majority have a significant buffer to withstand future shocks, which should help reassure investors.
The markets have responded positively, with the results overwhelmingly being seen as credible.
So banks are now stronger as a result of the new regulatory framework, the actions supervisors have taken, and market pressure. This will put them in a better position from which they will be able to lend again.
We also need to complete our framework for the financial sector by tackling other major sources of risk, by taking forward proposals that are currently under negotiation, such as on Money Market Funds, benchmarks and bank structural reform. And of course be alive to new risks that may emerge.
I will also work to make sure that international standards and principles are implemented consistently. And that we eliminate overlaps that are an obstacle to trade and close loopholes that present risks to financial stability. We will work closely with other G20 countries, and in particular, I am keen to strengthen our regulatory co-operation with the US.
Then, I am keen to explore how to bring the benefits of the single market for financial services more directly to consumers. Over the last 5 years, we had to concentrate on achieving financial stability and improving how our financial system is regulated and supervised. Over the next 5 years, I hope we can think more about how we can open up a better market for safe, transparent, affordable retail products.
We also need to consider how quickly consumer behaviour is changing in the face of new technology and the development of digital services. This could transform the face of banking, with all the benefits of price competition and service that – if properly and securely regulated – it could bring.
And then of course I will be bringing forward proposals to deliver a Capital Markets Union; a project for all 28 EU Member States.
As a result of the comprehensive assessment and the stress tests, European banks are now stronger and better placed to start lending again more than before.
That is good. But alongside that, we need to develop other sources of funding for Europe's businesses. And to reduce the cost of capital.
A couple of figures make the point. Mid-sized companies in the US have roughly five times as much funding from capital markets as their counterparts in the EU. EU businesses get about 80% of their financing from banks, and 20% from debt securities. In the US, depending on which set of statistics you are reading, or which statisticians you are talking to, the ratios are broadly speaking the other way round.
Now I am not telling you that we should – or can – simply copy the US. But the figures illustrate a clear contrast.
My ambition is clear: to help unlock the capital around Europe that is currently frozen and put it to work in support of Europe’s businesses, particularly SMEs. And that is where the Capital Markets Union, a new frontier of Europe’s single market, comes in.
If a new business owner in the EU has an opportunity to expand, at the moment his options are mainly to turn to friends and family or his local bank. I want to expand his range of options to include listing on a growth market, which could give him access to investors anywhere within the EU, to business angels, or crowdfunding.
That would be good for business, but also good for savers as they have more investment choices.
But we're not there yet. The situation at the moment is one of dis-unity; of fragmentation. Shareholders and buyers of corporate debt rarely go beyond their national borders when they invest. Savings are essentially compartmentalised in Member States, and are too concentrated in the banking system. This is holding back the size and depth of capital markets, making it difficult for investors to diversify.
There are a number of reasons for this fragmentation.
There are differing rules, documentation and market practices for products like securitised instruments, private placements or crowdfunding.
There is the tax element, with a strong bias against equity and in favour of both corporate debt and mortgage debt.
The national nature of insolvency law is another feature.
And investors don’t have access to comparable information on smaller businesses to assess the risk of investing across countries.
Addressing the challenges
So how will we tackle these problems? That is the discussion that today's conference will help us to kick off. We need to identify the obstacles to a full Capital Markets Union. And then work out how we can overcome them. One part of this will be a proper economic analysis.
But alongside it, I am going to launch a wide public consultation. I will listen to everyone who wants to contribute – parliamentarians, including national parliaments, Member States, citizens, and NGOs, as well of course as the financial sector and end users. Above all, I want to hear opinions from all 28 Member States because this must be a project for all 28.
But before then, there are some immediate and practical steps we can take now.
The first of these is our proposal for European Long Term Investment Funds.
If the co-legislators can adopt the legislation on these funds before the end of the year, as I hope they will, ELTIFs could soon help to mobilise the funding for infrastructure and businesses, particularly SMEs, that Europe so badly needs.
Second, I plan to look at developing an EU framework for high-quality securitisation, building on work already underway in the EU and globally.
Third, I want to examine how we treat covered bonds in our legislation and carry out a global comparison of private placement markets.
Longer term, we need to think about how to give greater access to SME credit information.
I want to hear ideas on how we can get more cross border investment but in forms that are stable, in which investors do not run for the exit when the going gets tough. In particular, I am interested in ideas for more market finance instruments – but not just in safe short term debt, but in longer term stable debt that encourages long term investment, and in real risk capital that encourages innovation.
I will use those ideas to develop an action plan by the summer of next year, which will be my roadmap to developing an ambitious capital markets union.
It is also clear that this will not be the work of one Commissioner alone.
In line with our new Commission approach, I will work on this with the Vice Presidents and with my fellow Commissioners.
We will not create a Capital Markets Union overnight.
It is a long term project.
But the early actions that are likely to form part of it will also start to generate funds in the short term, notably in the context of the major investment package that President Juncker has promised to bring forward by the end of December.
And a well-functioning capital markets union could make it possible to extend the reach and time-horizon of this one-off investment package.
Ladies and gentlemen, the EU faces two great challenges: an economic challenge, and a democratic challenge. The two come together because without addressing the first, we won't be able to address the second.
As Commissioner, I hope to play my part in tackling both.
People will only have trust if they see real, positive outcomes, if they can experience first hand the benefits of more competition, better services and more investment.
Not only for the entrepreneur looking to grow their business.
But also for the saver wanting a better return to fund his retirement.
I would like us to create an integrated, well-regulated and liquid Capital Markets Union. One that creates a “home market” of all 28 EU Member States.
I want investors to be well-protected and have the confidence to invest in the future of our economy.
I want to be able to attract investment from all over the world.
And I want capital to be able to flow to where it is most needed and can be most productive.
Free movement of capital was one of the four fundamental freedoms underpinning the single market.
But nearly 60 years after the Treaty of Rome, we still do not have a fully functioning single market for capital.
My task – our task – is to drive that process forward.
To take practical steps that will help us to get investment flowing. Not as an end in itself, but because of the benefits it will bring: to investors, to businesses, to consumers and citizens, to the wider economy, and – yes – to jobs and growth.