13 March 2016

VoxEU：欧州資本市場の機能改善には資本市場同盟が有効

[...]The overarching objective of the European Commission’s Capital Markets Union (CMU 2015) is instead to develop more cross-sectional risk sharing via capital markets, which protects from aggregate systemic risk produced by permanent asymmetric shocks. In particular, it aims at allocating more private savings in the purest form of cross-sectional risk sharing, such as equity and foreign direct investments.

Beyond financial stability, the cross-sectional risk dispersion of market mechanisms also produces additional positive spillover effects, such as:

• Better transmission of monetary policies via market-based reference rates, which improves the effectiveness of actions like quantitative easing;
• Greater access to finance and availability of equity tools, such as crowd funding and private equity, more suitable to fund innovation (Giordano and Guagliano 2014);
• Rebalancing of the financial system through risk diversification, as research confirms the parabolic relationship between the size of the financial sector and growth if institution-based funding (credit markets) overgrows (Cecchetti and Kharroubi 2012, 2015; Langfield and Pagano 2015); and
• Supporting the restructuring of the banking system via the offer of market solutions to banks’ offloading of non-performing exposures.

Europe’s financial structure

Europe’s financial structure lacks capital market activity to support the economy. Banking sector assets are more than three times Europe’s GDP, with even higher incidence on the economy than the Chinese banking system. It is not by chance that financial instability continues to bite in the two regions where the financial system is less diversified, i.e. Europe and China. [...]

Overall, the EU economy lacks sufficient equity funding. Equity markets, in particular, are fragmented along geographical borders. Their aggregate turnover is only a fifth of their US counterparts. Despite the recent astonishing growth, the asset management industry is still limitedly spread across the EU and with scarce retail penetration. Distribution channels of investment products are mostly closed and segmented by local banking systems and national marketing laws. There are over 32,000 investment funds in Europe compared to roughly 7,600 in the US, with an average size respectively of €186 million and €1.34 billion. Many of these investment funds are set up to charge upfront fees and other fixed charges. Crowd finance is still in its infancy, but it may play an important role, especially for small and medium enterprises, as it offers risk dispersion like open markets but with a high degree of risk customisation for capital seekers. Private equity and venture capital investments are only a fraction of their US counterparts. 

How to improve the quality of financial integration?

Facing overwhelming evidence about the poor quality of Europe’s financial ecosystem, the capital markets union project has the responsibility to rebuild trust in the single market for a multi-currency area. [...]

In this spirit, the European Capital Markets Research Group research identifies 36 barriers to cross-border capital market integration and suggests 33 policy recommendations to create an organic action plan for capital markets integration. Three main actions occur in a capital market transaction: price discovery, execution, and enforcement. A barrier is most harmful if it produces unpredictability of the costs of such actions, which a financial market transaction would then not be able to discount. Inability to price risk creates uncertainty and ultimately preclude new trading activity to take place. [...]

As a result, Europe’s capital markets are still in the hands of 28 national supervisors that often fight to defend the national interests of small and inefficient financial industries that offer access to local capital markets. The recently created European Securities and Markets Authority has only limited mediation powers and its management cannot even vote, leaving the responsibility to protect the European interest to the sum of the national interests. It is a Europe with poor enforcement powers in the period of most intense rule making for a sector that requires strong deterrence.

Twenty years after the first empirical findings on legal and financial systems (La Porta et al. 1996), a capital markets union should bring the removal of legal and economic barriers at the forefront of the capital market integration process to achieve the needed private risk sharing for the stability of Europe’s single market.

Full article on VoxEU

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