Finance Watch Secretary General, Thierry Philipponnat, said:
“The real economy has clearly suffered from the insufficient amount of capital being invested with a long-term horizon. We welcome the Green Paper and hope that the ensuing consultation will be followed up swiftly with legislative action.”
Finance Watch senior policy analyst Frédéric Hache said:
“We strongly welcome the focus on productive capital as opposed to financial capital.”
Market financing may be part of the solution to fill the long-term funding gap. However, promoting market financing calls for a parallel regulation of shadow banking, as unconstrained risk located outside of regulated institutions has been shown to create systemic problems.
In addition some market financing instruments require very careful designing: as an example securitisation should not come back in its pre-crisis shadow banking form. Instead, it should be without leverage, maturity transformation, principal–agent problems, overreliance on ratings or loss of flexibility for the borrowers.
“The Green Paper recognises a number of these points but policymakers must remain extremely vigilant,” said Mr Hache.
There is also a qualitative difference between bank lending and market lending that needs to be taken into consideration, in terms of flexibility for the borrowers and quality of the risk assessment, typically in the case of SMEs.
Finance Watch also welcomes ideas in the Green Paper that apply beyond financial institutions, such as the forthcoming review of the Shareholders Rights Directive.
This helpful initiative includes a study of mechanisms to stimulate long-term holding of shares such as increased dividends or voting rights. Buy-and-hold investments, while not without their issues, better align with real economy interests than short-term trading.
Thierry Philipponnat said:
“We need more investing and less betting. This is why, in parallel to this long-term financing paper, we also need to discourage short-term trading activities such as high frequency trading and certain forms of derivative speculation, as proposed in the Review of MiFID (Markets in Financial Instruments Directive).”
Given the strong public interest dimension of long term financing, Finance Watch has argued since its inception that policymakers have a key role to play in designing the proper incentives and regulatory framework to ensure the right outcomes for society.
“Policymakers will not be taken in by simplistic arguments in favour of deregulation. While some regulations do hold back the economy and should be replaced, it does not follow that unregulated markets will deliver what society needs of them. For finance to serve society, it needs a proper regulatory framework that creates the right incentives. Finance Watch and its Members look forward to contributing to the consultation,” said Mr Philipponnat.
NOTES FOR EDITORS:
The Green Paper is a consultation that raises 30 questions, to which interested parties may respond until 25 June 2013.
The Commission’s Staff Working Document explains the reasoning behind and economic underpinning of some of the more concrete ideas. However, this is not a White Paper, which is the standard policy instrument to test legislative ideas prior to the adoption of actual legislative proposals (Directives or Regulations). Given the Commission’s proximity to the end of its mandate in 2014, only a limited number of legislative initiatives are expected to follow from this Green Paper in the short term.
The Green Paper and the Staff Working Document can be downloaded from