BUSINESSEUROPE: Global impact of Basel III and Solvency II on the financing of enterprises

05 April 2011

BUSINESSEUROPE underlines the importance of a comprehensive quantitative impact study on the cumulative effects of both Basel III and Solvency II, which assesses both macroeconomic effects and the consequences for the financing of European companies.

• Considering the fundamental importance of financial stability for the economy, BUSINESSEUROPE supports reinforcing (for banks) and modernising (for insurance companies) prudential rules. The efficiency of these reforms depends on the existence of a global level playing field which takes account of European specificities regarding access to finance and bank lending to avoid regulatory arbitrage and any distortion of competition.
• The new rules will have a significant impact on the financing of the European economy and in particular on the financing of smaller and medium-sized European companies. This will be even more serious considering the cumulative effects of the different prudential rules combined with other financial reform measures.

• New requirements will lead to tighter and costlier access to bank lending and will discourage institutional long-term investments.
• Both Basel III and Solvency II will lead to an increase in demand for long-term government bonds to the detriment of corporate financing.
• Basel III will hamper trade and harm the competitiveness of European enterprises through tighter and costlier access to export finance and trade finance instruments.

• A number of other legislative projects, both recently adopted and planned, will also have an impact on financing conditions, such as rules on private equity, derivatives, measures to reinforce bank depositors‟ protection, financial sector tax and resolution schemes. The combined effects of these reform measures together with new prudential rules should not jeopardise European companies‟ access to finances.
• At a time when the economic recovery can only be sustained through an increase in corporate investment, it is essential that the uncertainty with respect to access to finance and economic growth is resolved.
• In addition, comprehensive ex-post evaluation of reform measures is essential to identify subsequent harmful effects and allow necessary adjustments.

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