09 January 2014

EACT sends letter to EU representatives on capital market funding

EACT is concerned that the EU is posing other obstacles for corporates seeking to be financed through capital markets. Furthermore,the EU continues to discriminate against corporate bonds in various legislative measures.

In a letter addressed to Sharon Bowles, Chair of ECON Committee at the European Parliament, Michel Barnier, European Commissioner for Internal Market and Services, and Yiannis Stournaras, Minister of Finance of Greece, the country holding Presidency of the Council of the EU, the European Association of Corporate Treasurers (EACT) states that as a direct consequence of Basel III / CRD IV, companies must increasingly look to the capital markets to find funding for investment and growth.

“We do not understand the policy logic where instruments that help finance the real economy - and thus support economic growth, job creation and capital expenditure in Europe - suffer from less favourable treatment than sovereign bonds in general and especially illiquid sovereign bonds", Richard Raeburn, EACT Chair, writes.

EACT sees this “unhelpful approach“ in two legislative initiatives: Firstly, the MiFID/R II under trilogue discussions would prevent some financial institutions from making markets for corporate bonds,whilst illiquid sovereign bonds would beexempted from such a treatment. Secondly, the forthcoming legislative proposal on the structural separation of banks couldsubstantially limit the ability of financial institutions to underwrite and make markets for corporate bond issuance.

“We understand that this proposal would also exclude from the separation requirement market making in government bonds; this is a furtherexample of discrimination of against corporate bonds,“ Raeburn writes.

According to EACT, the inevitable economic consequence of such restrictions will be a reduction in the level of capital market funding offered to the real economy and an increase in its cost.

Full letter

© EACT