Insurance and Finance

What Is The Capital Markets Union And Why Does It Matter?


Capital Markets Union The European Commission has just launched its roadmap to create a single capital market among the 28 Member States. The Commissioner for Financial Stability and Financial Services, Jonathan Hill, presented on Wednesday the first measures that the Community Executive will adopt to convert the community space into a single market that makes available to European companies, and in particular SMEs, a range wider range of funding sources.

“I want to break down the obstacles to facilitate the free movement of capital between the 28 member states.” Hill has made this project, known as CMU for its acronym in English (Capital Market Union) at the center of his mandate, to complete this ambitious project in 2019.

What Is The Capital Markets Union?

This is one of the central projects of the Juncker Commission , framed within the priority objective of stimulating growth and promoting job creation among the Twenty-eight. Just as there is freedom of movement for people and goods in the EU, a fully integrated market should favor the free flow of capital throughout the territory. However, the different national legislations that regulate financial services make this objective difficult. The reality is that capital markets –including banking and non-bank financing channels (venture capital, bond issues, securitization, etc.)- continue to be fragmented today.

What Advantages Will The Capital Markets Union Bring?

In the EU, a large company, especially if it is listed, has access to different financing channels that allow it to undertake its projects. However, European SMEs are excessively dependent on traditional bank financing and in crises such as the one that has occurred in recent years they have been exposed to a clear risk of illiquidity. The creation of a single capital market will make it easier for these companies to access new financing channels and, with the amendments to different regulations already in force, will help unblock financing operations that are currently not being carried out due to legal and regulatory obstacles existing.

For Francisco Uría, partner in charge of the Financial Sector of KPMG in Spain, it is, ultimately, “advancing in the process of building a true single market in the field of capital markets as an instrument for improving business financing which, without a doubt, should be considered positive”.

What Measures Does The European Commission Plan Include?

The Community Executive presented on Wednesday a series of measures aimed at achieving these objectives. Some of them will require a long period of processing -we must not forget that the Commission is the one who proposes the legislation but it is the Member States and the European Parliament who discuss and approve them-, while others may be apply in a relatively short period. short.

The main immediate actions announced by the European Commission seek to boost the securitization market and boost investment in infrastructure, identified by Brussels as the major projects that generate growth and employment.

  • New Rules On Securitization

Securitization is the process of creating, normally by a lender such as a bank. A financial instrument that brings together specific assets (for example loans for the purchase of vehicles) and that investors can to buy. Securitizations make it possible to reach a wider range of investors. And thus increase liquidity and free up capital for banks to lend more. The Commission has proposed a regulation and the modification of an existing one (CRR) to create a classification of Simple. And Transparent Securitizations that will receive better regulatory treatment from the point of view of capital requirements of banks.

  • Insurance Coverage for Infrastructure Investments

The insurance industry has adequate means to finance long-term investments in infrastructure. Essential for economic activity and growth in the EU. However, the current capital requirements established by Solvency II limit and hinder such investments. The Community Executive has proposed a modification of this regulation to create a category of infrastructure assets. That reduces the amount of capital that insurance entities must maintain concerning the investment in debt. And capital made in said projects.

  • Public Consultation On Venture Capital:

The Commission will launch a consultation to ask if the changes in the current European rules. And also That regulate venture capital (FCRE) and social entrepreneurship funds (ESEF) would help promote the use of these funds to finance to SMEs and unlisted companies. Some of the issues that are intend to be modify the restrictions applicable to fund managers and the minimum. Investment level currently impose (100,000 euros). The consultation will be open until January 6, 2016.

  • Public Consultation On Covered Bonds:

European credit institutions are world leaders in the issuance of covered bonds. Key instruments for long-term financing in many Member States. The market is currently fragment along national borders and makes it. Difficult to create a truly deeper and more liquid European market. The consultation, which will end on January 6, 2016, will address the possibility of creating a pan-European. Market based on the national regimes that work best and have the best practices.

– Impact of financial legislation: And also To avoid excessive regulation in financial markets. The Community Executive has launched a call to detect possible inconsistencies and gaps in financial regulations. As well as unnecessary burdens and factors. That may affect negatively to long-term investment and growth.

Capital Markets Union In Figures

  • 2 trillion euros is the value of the infrastructure investments need in the EU until 2020. According to the European Investment Bank
  • 5 times more financing through capital markets receive US SMEs compared to European ones
  • And also 8.3 billion euros was at the end of 2013 the total capitalization. Of the stock market in the EU.
  • 125% is the ratio of market capitalization to GDP in Luxembourg. Compared to just 4% in Lithuania.
  • 2.5% of the EU’s GDP is public investment in Europe in the last decade. In the 1970s this proportion was 5%.
  • 18,700 million euros is the amount of public-private joint ventures And also carry out in the EU in 2014.
  • €216 billion in assets were package through securitizations.
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