11 April 2013

Commissioner Barnier: Meeting the challenge of Europe's long-term financing needs - a pre-requisite for jobs and growth

Speaking at the Eurofi High Level Seminar, Barnier said that banks would continue to play an important financing role in Europe but a more diversified system needed to be ensured, with higher shares of direct capital market financing and greater involvement of institutional investors.

SSM/SRM

The Single Supervisor cannot be a stand-alone piece of legislation. As we have witnessed in Cyprus – transparent and clearly defined resolution procedures for banks are paramount.Most European banks, like Cypriot banks, have branches and subsidiaries in other European countries. So we need common rules. It is becoming truly urgent to adopt, within the next few weeks, our Directive on Bank recovery and resolution. Some Member States argue that we need much more flexibility and national discretion in the rules. We disagree. Yes, every bank and every crisis is different. But we need to have one set of common, predictable rules. National authorities need some flexibility. But national discretion must be limited and properly framed.

One word on bail-in in this context: Deposits under €100,000 will always be protected. But shareholders, creditors and all other parties need to know in advance what to expect in case of resolution. So we need to establish a clear order of claims.

The Commission proposed that the bail-in tool would be applicable from 2018. The ECB and others have recently called for an earlier application. Let me be clear on this point: We are not against an application from an earlier date. But the bail-in tool cannot be seen in isolation. In order to avoid fragmentation in the Single Market, all parts of the banking union must be in place. This includes agreement on the complete tool-kit of resolution tools. And most importantly, common financial back-stops. We need to find a swift agreement on all these subjects. I look forward to the discussion tomorrow with ministers and central bank governors.

We will also touch on the second element of the Banking Union – the Single Resolution Mechanism. The Commission will make proposals this summer. I believe we need one centralised resolution authority. It should have a light but efficient and credible structure. And from a European perspective, it would make sense and be both more coherent and effective, for those countries which belong to the Banking Union to establish a common resolution fund.

As was the case for the Single Supervisory Mechanism, we need to ensure that Member States outside the eurozone can join the system if they so wish. I am convinced that we can do this under the current Treaty.

Long-term financing

New capital requirements, supervision and resolution will bring back financial stability. But this is not sufficient to restore what Europe needs most: growth and jobs. Europe's economy faces massive long-term investment needs. As recognised by the G20, these are essential for innovation, competitive industries, modern infrastructures and green growth. They require long-term financing. We need to make supply and demand meet.

Europe has strong assets for long-term investment: We have high levels of private savings and foreign investment. Yet many factors are holding back long-term investment in Europe:

• general risk aversion in companies
• lack of confidence of both savers and investors
• and banks are scaling back on their lending to the real economy.

We need to change this situation.

Banks will continue to play an important financing role in Europe. But we need to ensure a more diversified system. With higher shares of direct capital market financing. And greater involvement of institutional investors. Our recent Green Paper on long-term financing launches a public debate in four important areas:

First, the capacity of financial institutions to direct savings towards long-term investment projects. We must seek a good balance between prudential requirements and long-term investment incentives for banks. We need to reflect on how institutional investors can complement commercial banks in the long-term financing process. I am thinking about insurance companies and pension funds, as well as national and multilateral development banks.

Second, the effectiveness of financial markets. Corporate bond, equity and securitisation markets in Europe remain relatively under-developed compared to other economies. The revised MiFID Directive will, once adopted, strengthen capital markets. And reduce short-term and speculative trading activities. Beyond this, we must think of other ways to develop bond markets in Europe as an alternative to bank loans. And we must ask ourselves how to revive the securitisation market. without compromising financial stability. We must not repeat the mistakes of the past in this area.

Third, we have to look at cross-cutting factors. Potential ideas include developing specific saving tools at EU level. To mobilise longer-term savings. But also tax incentives for long-term investment.

Last but not least, we need to facilitate SMEs’ access to financing Not all SMEs are destined to become global players. But all SMEs are important for Europe’s recovery and competitiveness. They are the backbone of the real economy. The CRD IV package keeps the current preferential treatment for lending to SMEs. And the European Parliament and the Council have recently reached an agreement on rules on European venture capital funds. Such funds will now be able to raise capital from investors and support start-ups all over Europe, based on a single set of rules. But we need to continue and look for new ideas. This is why I encourage all of you to participate in our public consultation. It is by working together that we will find the best ways of encouraging long-term investment. Laying the groundwork for stronger growth and more jobs in Europe.

Full speech

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