Member of the European Commission, responsible for Financial Stability, Financial Services and Capital Markets Union
Speech at European Parliament Economic & Monetary Affairs Committee Committee
Brussels, 24 February 2015
Thank you for giving me this opportunity to present the Green Paper on Capital Markets Union so soon after its adoption. I was grateful for the responses that party groups have come up with and for the overall support that they have expressed. But I wanted to come myself to ECON and to hear from you directly because it's always better to get it straight from the horse's mouth.
Sorry for limited time; am heading off to the U.S. to talk about international co-operation on regulation, another subject in which I know many of you are interested in.
As you know, CMU is the Commission's flagship project to build a single market for capital. It is a key part of our overall drive to boost jobs and growth. If the €315 billion Investment Plan is aimed at kick-starting investment, Capital Markets Union is about encouraging investment for the long-term. It is a project for all 28 Member States, where some of the newer members with the least developed capital markets stand to benefit most, and are most excited about its potential.
A single market for capital will benefit the whole European economy, helping to unlock the capital that is currently frozen and putting it to work to support Europe's businesses, particularly SMEs and start-ups. We want to remove the barriers that stand between investors and investment opportunities; and we want to make the system for channelling those funds more efficient.
In many parts of Europe, companies struggle to get the funding they need to expand. They tend to rely on the banks and far less on capital markets. In other parts of the world, the opposite is true.
This reliance on banks also makes the European economy more vulnerable when bank lending tightens. We saw this happen during the financial crisis, and we saw banks and investors retreat to their home markets. So, there is a financial stability angle to this, as well.
The CMU would act as a major upgrade to a network that connects those who need financing with those who have money to invest. Europe, of course already has a developed financial network; but now it needs better connections to make that network become faster, more developed and more efficient.
We want to build a CMU that gives retail investors a wider range of choices about where to put their money, and the confidence in the integrity of markets to make those choices. The consultation seeks views on how best to achieve this, both when retail investors invest directly, and when they do it through intermediaries, asset managers and advisors. We also need to consider the role the European Supervisory Authorities can play in contributing to building consumer confidence.
Capital Markets Union is about complementing the role of banks, not about displacing them. It is about developing European solutions not aping American ones. Europe's banking system will obviously continue to play a pivotal role in Europe's economy: it is very important to local communities; and it is at the heart of capital markets themselves. I am sure that many companies will continue to get the bulk of their finance through bank lending.
But there will be others who would welcome more options for financing. And in some EU countries, where banks are not lending, our start-ups and our SMEs are struggling. That is why they need to be able to tap into alternative sources of funding.
To take one example. If EU venture capital markets were as developed as in the U.S., companies would have been able to tap into an extra €90 billion of funding between 2008 and 2013.
Building a single market for capital is a long-term project and it is an ambitious one. We will need to work hard on difficult, sometimes long-standing issues, such as securities laws, investment restrictions, tax treatments of debt and equity, insolvency regimes.
So alongside looking at how we can boost investment and improve access to finance, the paper also looks more precisely at some of the barriers to making our markets work better for all involved.
For example corporate bonds tend to lack liquidity and it is difficult to issue them at small sizes. Some countries have looked at making this easier, and we want to assess the appropriateness of greater standardisation in this area – through a market led initiative or regulatory intervention.
Environmental, social and corporate governance bonds – the proceeds of which are directed to environmental or social causes – are growing rapidly, partly due to a market-led standardisation process. Is there anything we can do to support or encourage this?
We want to look at ways we can make it more attractive and easier for investors to invest in UCITS cross-border by lowering the costs of setting up and marketing funds – in particular whether requirements imposed by host Member States on cross-border funds with a passport granted by their home Member State are acting as a barrier to the single market.
In terms of insolvency, we know there are differences both in terms of the speed at which legal processes operate, and the recovery rates involved. Bad debt loss in the EU was estimated at €350 billion in 2013, so progress here could encourage investment.
The prize is worth fighting for: it is for companies to be able to access the funding they need from across the EU; for SMEs to be able to raise finance more easily; for people who are saving for their future and retirement to be able to benefit from a wide range of affordable investment opportunities; and for investors to come from all over the world to invest in the EU because they know our capital markets are safe, stable and efficient.
This Green Paper marks the beginning of a three-month consultation. I am keen to hear from parliamentarians, including national parliaments, Member States, citizens, NGOs, SMEs, as well of course as the financial sector from all 28 Member States, because this must be a project for all 28 that will benefit all 28. Tell us what the practical barriers and obstacles are and we will try to work out how to overcome them, one by one.
But although it is a long-term campaign, I want us to make early progress. Therefore, we launched two other consultations alongside the Green Paper: one on securitisation, the other on the Prospectus Directive. Let me give you an idea of what we're looking at in these two specific areas.
With the first, we are seeking to encourage the development of an EU market for high-quality securitisation, which is transparent, simple and standardised. If we can achieve that, we can help free up banks' balance sheets so they can lend to households and businesses. And to take one example - if SME securitisations could be returned – safely – to just half the levels they were in 2007 compared to today; this could be equivalent to some 20 billion euro of additional funding.
We will not be going back to the bad old days of subprime mortgages. Our door will remain firmly closed to the highly complex, opaque and risky securitisation instruments which were part of the crisis. But we are consulting on the best ways to single out a category of highly transparent, simple and standardised products in line with recommendations from the ECB and the Bank of England.
We are also launching a review of the Prospectus Directive, to try to make it easier for companies, including SMEs, to raise capital anywhere in the EU. We will be taking a hard look at whether we can remove unnecessary administrative burdens for companies raising capital across the EU without jeopardising investor protection.
Both consultations will take three months and are likely to lead to early legislative proposals. On the back of these consultations, I will come back to you later in the year with an Action Plan to set out our priorities and the next steps that we will take. There will not be a silver bullet, one simple lever that we can pull. Rather there will need to be a sustained campaign over the whole life-time of this Commission. Above all, this is a campaign that we need to work on together, so I look forward to the contributions of Members of this Committee– not just today but in the months to come.