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23 August 2015

Financial Times: EU warned not to let CMU hurt role of banks

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A senior German banker has warned that the EU’s efforts to build a capital markets union should not be seen as a way of reducing the role of bank lending in funding the region’s companies.

In contrast to their US peers, which get the majority of their financing from the securities markets, European companies traditionally receive about 80 per cent of their external funding from bank loans.

This can leave small companies, in particular, struggling to access funding when banks retrench, as they did in the years following the financial crisis — prompting calls for greater efforts to foster non-bank forms of funding.

However, Georg Fahrenschon, head of the German Savings Banks Association, said that although a capital markets union made sense, the project should not come “at the cost of traditional bank financing”.


The EU is considering a range of measures to spur capital markets in the bloc and break down barriers to cross-border investment. The European Commission, the EU’s executive arm, is set to propose regulatory changes as soon as next month, aimed at reviving the market for asset-backed debt and promoting infrastructure investment.

The commission has also suggested longer term measures to address differences in national insolvency laws, and has sought views on greater standardisation of the corporate debt market. However, Mr Fahrenschon warned that for many small companies, corporate bonds were simply not appropriate.


“The fit doesn’t work. And that is why we need two things. Besides a capital markets union, we also need a platform for traditional, regionally oriented suppliers of credit.”


Mr Fahrenschon, who previously served as finance minister for the German state of Bavaria, also called for a review of the impact of the wave of regulation that followed the financial crisis, arguing that its full impact was not properly understood.


Full article on Financial Times (subscription required)

© Financial Times

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