Building a Capital Markets Union – reaction from TheCityUK

This green paper represents a significant step forward in the drive to create a Europe where essential finance needed to drive growth can flow more freely. In the UK and across Europe more and better paid jobs are needed, and these can only come from firms investing in their businesses.

Banks will always have a major role in financing companies, but new sources of finance are needed too and Lord Hill’s plan rightly addresses this need in straightforward and practical steps. One of the reasons why the American economy recovered from the recession faster than Europe was that it had an active capital market to help provide finance for businesses at the time when its banks were under strain. In the US banks provide only 20% of business finance while in Europe this figure is 70%.

This paper marks the start of a long journey for European markets and European businesses, but one which offers rich rewards. We look forward to being fully engaged in the consultation process, in particular to assisting the Commission in identifying the barriers that corporates face in accessing the finance they need to grow.

TheCityUK welcomes Lord Hill’s Green Paper on the development of a Capital Markets Union (CMU) for Europe.

Capital markets represent an important part of the financial system globally, although in Europe they figure less prominently than in some other advanced economies. In 2014, the volume of equity and fixed income securities traded on major exchanges amounted to around $80 trillion. Funds raised through IPOs globally amounted to $256 billion in 2014, a quarter of which was raised on European bourses. Compared to other advanced economies, financial intermediation in Europe is more reliant on banks than capital markets. By building a Capital Markets Union across Europe, the companies that operate here should be able to get access to finance more cheaply and quickly.

TheCityUK supports Lord Hill’s view that any discussion of a new Capital Markets Union must begin and stay focused on the needs of Europe’s companies. It will only succeed if the proposals put forward help them to raise finance and invest in their companies, upgrading plant and machinery and hiring more staff. TheCityUK is currently researching what Europe’s companies need from CMU and will be presenting the analysis to Lord Hill.

TheCityUK is pleased to see that so much of what the financial and related professional services industry has previously advocated for has been included in the paper, for example restarting high quality securitisation markets. We welcome the core principles, in particular that a CMU should encompass all 28 Member States and seek to ensure that the EU is an attractive destination for investment from other parts of the world. We also applaud the pragmatic approach taken by the Commission in separating the steps required to realise CMU into short-term ‘quick wins’ and longer-term strategic objectives.

TheCityUK is pleased to see the Commission’s focus on the importance of increasing the financial capability of European investors as ultimately it is the savings of Europe’s citizens that provide the “Capital” for any Capital Markets Union. Other expected benefits include the mobilisation of capital for infrastructure development and helping the EU advance policy priorities through environmental and social investments.

The publication of the Green Paper begins the work in identifying immediate barriers to capital markets financing as well as investigating the longer term priorities for the development and integration of European capital markets. TheCityUK and its members look forward to being fully engaged in the consultation process, in particular to assisting the Commission in identifying the barriers that corporates face in accessing the finance they need to grow.