07 July 2015

CRR and long-term investment: European Commission appoints London Economics and Graham Bishop to study the impact

FOR IMMEDIATE RELEASE

LE Europe – in association with Graham Bishop - has been appointed by the European Commission to assess the impact of the Capital Requirements Regulation (CRR) on the access to finance for business and long‐term investments, including infrastructure projects.

·        Graham Bishop, a consultant on EU financial matters, will advise on the importance of the CRR Articles to infrastructure financing.

·        Infrata, advisors on infrastructure financing, will test with market participants whether the CRR actually has had an impact on bank financing of infrastructure.

Point of contact: Please contact Shaan Devnani (sdevnani@le‐europe.eu / +44 203 701 7709) who will be overseeing the study.

NOTES for EDITORS

This note provides the background[1] and objectives of the study, and an overview of how the eventual recommendations of the study will be taken forward by the European Commission.

Background: Economic growth and job creation require investment in assets, such as infrastructure, energy, education and research and development (R&D) that expand the productive capacity of a modern economy. The attainment of such an objective can only be achieved through the adequate availability of stable, long‐term financing for such assets on a multi‐annual basis.

With regard to the EU banking capital framework, Regulation 575/2013 of the European Parliament and of the Council on prudential requirements for credit institutions and investment firms (CRR) provides a single rulebook establishing a single set of harmonised prudential rules which banks throughout Europe must respect.

The CRR requires increased regulatory capital for banks in the EU, the main objective of which is to ensure the resilience of banks and financial stability. However, increased regulatory capital requirements for banks may affect banks’ capability to provide financing in the EU - the focus of the present study.

The objective of the study is to assess the impact of the CRR on financing of business and long‐term investments, including infrastructure project; specific objectives are to analyse:

i.        The possible impact of increased bank capital requirements on bank lending in the EU, including the period in which banks were in the process of adjusting to the new requirements. In particular, the study will assess whether reinforced capital ratios have played a role in the observed process of banks' reduction in bank assets that has taken place in many EU economies over the last few years

ii.        Whether the abovementioned impacts can be more durable and continue to impact banks supply of financing after banks have fully adjusted to the new capital requirements

iii.       The impact of the strengthened capital requirements on infrastructure financing

LE Europe’s team will draw on the input of academic and policy advisers to meet the objectives of the study, including: William White, Chairman of the Economic Development and Review Committee at the OECD; Thorsten Beck, Professor of Banking and Finance at Cass Business School; Katja Neugebauer, Research Officer at the LSE Systemic Risk Centre; and Franziska Bremus, Research Associate at DIW Berlin.

Recommendations:The eventual recommendations of the study will inform the European Commission reports to the European Parliament and the Council on the effects of CRR Articles 505 and 516:

·        The appropriateness of the CRR requirements in light of the need to ensure adequate levels of funding for all forms of long‐term financing for the economy, including critical infrastructure projects  

·        The impact of CRR on the encouragement of long‐term investments in growth‐promoting infrastructure

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·       Graham Bishop: Biography

·       London Economics: About us

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