Unveiling the proposal for a “Capital Markets Union” today in Brussels, EU Internal Markets Commissioner Jonathan Hill said that the proposal would “help European businesses, and our SMEs in particular, have a wider range of funding sources”.
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However, Commissioner Hill will argue that a harmonised Capital Markets union will make the financial system more stable by taking the pressure off banks and effectively sharing risk, as well as providing more investment from both inside and outside the EU, for the SME sector and long term infrastructure projects.
He also wants to encourage insurers to invest in infrastructure such as roads and digital networks by cutting their capital charges on such investments by about a third.
“I want to knock down barriers to make it easier for capital to flow freely across all 28 member states”, Mr Hill said in a statement.
According to the Commission, the European Union securitisation markets withstood the financial crisis relatively well, the market has remained subdued while the United States market has recovered.
While Lord Hill sees the CMU as creating a single market across all 28 countries, there are questions about whether the rules will work differently for the 19 countries that use the euro. This entails banks repackaging loans to individuals and small businesses – such as auto loans or mortgages – into one financial instrument that can then be sold on to major investors.
Banks are still under a state of fix, as they try to meet new capital ratio standards. The Commission is proposing a regulatory framework for securitisation which is simple, transparent and standardised and subject to adequate supervisory control. The insurance industry is well-equipped to provide long-term finance by investing in equity shares as well as loans of infrastructure projects. The EU’s executive arm is seeking views until January 6 on whether it should allow larger fund managers, more retail investors and more companies to qualify in the review. While welcoming the plan as a step in the right direction, Insurance Europe, the sector’s main lobbying group, warned that “these changes are not enough to remove the barriers to investment by insurers”, as capital charges remain too high.
Thirty-four funds have registered for the label dubbed EuVECA.
Only fund managers with less than 500 million euros in assets under management can now use the EuVECA label, while bigger companies may fall under similar rules for alternative investment funds. The consultation runs until 6 January 2016.
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Policymakers have said that creating a CMU will be as much about changing attitudes as reforming market practices. “However, we should make it clear that the goal is not only to boost market activities but also to diversify sources of financing, in order to boost investment and growth”. Once the consultation has closed, the Commission will decide whether European Union action is needed.
