“The first point I would make is ‘Don’t forget the macroeconomic perspective'. A programme that simply shifts the flow of finance from banks to capital markets, without any change in the aggregate total, is unlikely to make a substantial difference to long-term growth outcomes. Of course, there may be some benefits through greater spreading of risks. But we also have to think about how to raise the supply of savings.
That takes us into a whole range of policy thinking about ageing populations, indebted young people, the decline of defined-benefit pensions, tax incentives for long-term saving and so on. A much much bigger set of issues than we are looking at today. But my point is, CMU has to start from, and recognise, this broader context.
And, focusing down on CMU itself, it is crucially important to realise that a successful CMU will require action on three fronts:
· to increase the supply of investor finance into capital markets
· to ensure competitive, fair and effective intermediation at a proportionate cost
· to facilitate increased use of capital market finance by corporates and others
These three elements are inextricably linked. The Commission’s aim can only be achieved by a programme that focuses on all three elements, and which understands how the elements will interact together.
My second point is that getting a greater supply of investor finance into capital markets will require appropriate protection for those investors.Getting a greater supply of investor finance into capital markets will require appropriate protection for those investors. As has been widely remarked, European citizens overwhelmingly prefer to place their savings in bank deposits. Bank deposits are simple to understand, liquid and protected by deposit insurance.
To increase investor financing of companies and enterprise for growth will require people to move their money, at least in terms of the relative share, from banks to capital market instruments and products. Instruments and products which are less simple, less liquid, and typically less protected, or least with more complex protection arrangements.
Investors will be more likely to invest if:
· the product is explained adequately
· they are confident that the product is appropriate to their needs and risk appetite, and
· they trust that the product has the necessary safeguards and is provided within a robust but proportionate regulatory framework
Measures that achieve this clarity, confidence and trust should help increase the supply of investor finance into capital markets. There is no trade-off between measures to promote market access and investor protection; rather, they go hand in hand.
My third overarching point is that Europe has already done a huge amount to build a capital markets union. There is already a substantial body of legislation promoting a single capital market in Europe – from common rules on accounting standards, prospectuses, prudential capital, UCITs, through to regulation of key infrastructures such as CCPs and trading venues.”