EU seeks “reboot” of capital-markets plan to reduce reliance on banks
European capital markets are still too small to provide enough funding for companies, which continue to rely on banks, an EU document said, urging new measures to unlock financial resources and spur funding through equities and corporate debt.
The document, seen by Reuters, was prepared by the Finnish presidency of the European Union before a meeting of EU finance ministers on Friday in Helsinki that will address the matter.
The EU offered a plan for a so-called capital-market union in 2015, but the project remains incomplete and still “falls short” of its initial goals, the document said, calling for its “reboot”.
Despite measures intended to decrease the reliance on banks and diversify funding sources, bank assets in the 19-nation euro zone still account for 300% of total economic output compared with 85% in the United States. Listed equity stands at 68% of output, compared with 170% in the U.S., the International Monetary Fund said in a report on Tuesday.
The EU document, which is not binding but sets the bloc’s priorities for the coming six months, urged an alignment of national laws on insolvency and corporate taxes in the 28 EU countries to remove barriers to capital flows. Capital now largely remains within national borders, defeating the purpose of the EU-wide capital-market plan.
Around half of equity investments by EU insurers and pension funds are in companies based in their home countries, the IMF said. That creates “an unlevel playing field,” because less available capital makes Greek or Italian companies pay more than their French or Belgian rivals on debt interest.
The EU document also said rules should be loosened to facilitate access to finance for smaller companies in the EU.
“Regulatory requirements should be reviewed to ensure that the burden is not prohibitive for smaller markets and smaller market participants,” it said.
It also urged changes to the EU’s main financial law, known as MiFID 2, to reduce costs of research on smaller companies. MiFID rules that came into force last year may have reduced the amount and quality of this research available to investors, the paper said.
EU families should also find it easier to invest their savings on debt or equity, the EU document says. About 40% of EU households’ savings are held in bank deposits, compared with 10% in the United States, the IMF said.
To reboot the EU capital market plan, the IMF also urged more transparency, by introducing compulsory reporting for all issuers of bonds and equities. It also called for more EU oversight on financial markets, which currently is largely in the hands of national authorities. Source: Reuters (Reporting by Francesco Guarascio @fraguarascio, editing by Larry King)