Professionals want a bolder Capital Markets Union
In tandem with about 10 international organisations, the Association for Financial Markets in Europe (AFME) has released its second report of seven key indicators on progress towards a European capital markets union (CMU). Among the disappointments cited in the report, the proportion of corporate funding on the equity and bond markets has fallen from 14% on average in 2013-2017 to 12% in 2018, with 88% of funding still coming from banks.
Moreover, because of falling asset valuations, the amount of European household savings invested in financial instruments (equities, fund units, bonds, insurance products and retirement savings) dropped from 118% to 113% of GDP between 2017 and 2018, and the “market depth” indicator, which reflects primary market issues and the development capacity of capital pools, has also declined.
Meanwhile, private equity funding has increased by 8% and even by 12% in the case of venture capital, and the transformation of bank loans into tradeable securities (such as securitisations and covered bonds) continues to improve, particularly in southern Europe where the percentage of non-performing loans is a big factor. Europe has widened its leadership in sustainable finance, with €69bn (+16%) in issues of green and social bonds, driven by the Netherlands’, France and Germany. And each market has, generally speaking, become more integrated with other European and international markets.
The report includes a new indicator this year measuring the European Union’s ability to promote fintechs and concludes that it is lagging behind in this area with just $7.2bn in investment since 2009, vs. $120bn in the US, $23.8bn in China, and $20.3bn in the UK, due better-suited regulatory environments and to vast local financing markets.
Between the topics of size and liquidity – for which care must be taken not to increase charges or “unnecessary” regulatory costs for market-makers – and issues of regulatory convergence, “there’s still lots of work to do on the European and national levels, particularly in making European capital markets more competitive”, AFME said. The association’s highly British character could lessen its pan-European influence after Brexit.