02 March 2015

European Commission: The role financial markets can play in growth and jobs

Speech at Securities Industry and Financial Markets Association (SIFMA).

First by ensuring that we have a strong, stable banking system that can lend to the wider economy. We have already done a huge amount of work to make that happen. Our banks are now much better capitalised. And with the Banking Union we have strengthened our supervisory system. It was good to hear in Washington that people there think that our recent stress tests were tough and credible. I will continue to work hard to make sure that things stay on the right track.

The second way is by developing stronger and deeper capital markets. As you know, Europe has traditionally been much more dependent on the banking system than you are in the US. Medium-sized companies here receive five times as much funding from capital markets as they do in the EU.

And the US venture capital market is about five times bigger than it is in the EU. If European venture capital markets were as developed as they are in the US, companies would have been able to tap into an extra 90 billion euro of funding between 2008 and 2013. More than 4,000 venture capital deals could have been struck.

But I am glad to say there is now support across Europe for us making a renewed push on completing the single market for capital and increasing the contribution that capital markets can make to our economy.

If we can get it right, businesses large and small will be able to raise finance more easily from across the EU; people saving for their future and retirement will be able to benefit from a wider range of affordable investment opportunities; the cost of doing business cross-border should fall and investors from the US and all over the world will want to invest in the EU because they know our capital markets offer more opportunities while being safe and stable.

And of course having more diverse sources of funding will in itself contribute to greater financial stability.

That is why we want to create a Capital Markets Union for all 28 countries in the European Union. Put at its most simple, its aim is to link savings with growth. We want to remove the barriers that stand between investors' money and investment opportunities; overcome the obstacles that are preventing those who need financing from reaching investors; and make the system for channelling those funds – the investment chain – as efficient as possible.

Some of the obstacles, insolvency and securities laws for instance, or the way debt and equity are treated in different tax regimes, are issues we have been grappling with in Europe for decades. But there are others where I think we can make some early progress.

These include making it easier for small firms to reach investors in other countries through revised prospectus rules; starting work to improve access to SME credit information; encouraging take-up of our new European Long-Term Investment Funds; and supporting an industry-led initiative on pan-EU private placement standards.

Another important strand of our work will be to help build a market for highly transparent, simple and standardised securitisation instruments in the EU. This would serve two purposes: it would help free up banks' balance sheets so they can lend to households and businesses, and it would form a bridge between banks and capital markets.

If SME securitisations could be returned – safely – even to half the levels they were in 2007, this could be equivalent to some €20bn of additional funding.

We are already tackling the treatment of securitised products through the detailed liquidity rules we apply to banks and insurance companies. But we are now consulting on the best ways to single out a category of highly transparent, simple and standardised products, something that central banks, regulators and the financial sector have long been calling for.

Full speech

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