Translated from the German
On Monday this week, EU Internal Market Commissioner Michel Barnier received a joint letter from the German Finance Minister Wolfgang Schäuble and his French counterpart Pierre Moscovici. In the letter, they urged the Commissioner to continue to ban from EU markets those funds that promise their customers stable buyback prices, as such a promise constituted a systemic risk to financial markets. All investment companies should only be allowed to offer flexible repayments depending on the current market value of the shares acquired.
With these demands, the two ministers indirectly attacked the financial centres of Ireland and Luxembourg. Most investment firms that are located in those two countries attract customers with the promise that every euro invested they will be able to get back. The origin of these funds is usually the US. In France, where a large number of investment firms also have their European headquarters, providers are only allowed to pay out dividends according to the current market prices.
The Franco-German letter arrived just two days before the scheduled submission of an EU legistative proposal this Wednesday, in which Barnier aims to make this largely unregulated sector of the market at least to some extent safer. From the outline of his proposed legislation, which the Süddeutsche Zeitung was able to consult, it is apparent that Barnier is trying to find a compromise between the German-French demands and the interests of the financial centres Ireland and Luxembourg. Instead of a general prohibition, Barnier suggests that funds with repayment guarantees should have to form a capital reserve, amounting to three per cent and to be paid into a blocked account. Barnier also wants to fix the minimum levels of any such funds' liquidity as well as the papers in which they are allowed to invest.
With investment funds that operate outside the normal banking operations, large transactions are made every day which are not supervised and/or subject to any uniform requirements. This means that ultimately none of the European or global early warning systems can monitor how the business of such funds could affect the stability of the financial system as a whole. The magnitude of these funds can be substantial: according to Barnier, a single fund can easily hold €50 billion. The global volume is estimated at €67 trillion.
Full article (in German)
© Süddeutsche Zeitung GmbH
Key
Hover over the blue highlighted
text to view the acronym meaning
Hover
over these icons for more information
Comments:
No Comments for this Article