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Long-term financing needs better information and incentives – conference summary

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Brussels, 16 May 2013 – Social value indicators and public guarantees are among the measures that could encourage financing for SMEs and long-term projects, said participants at a Finance Watch and Confrontations Europe conference in Brussels last month, “Funding the real economy today and tomorrow”.  Other key points from the event (summarised below and available in detail online) include a stronger role for banks in SME lending and clearer long-term incentives for asset managers.

Finance Watch and Confrontations Europe both intend to submit responses to the public consultation to the Commission’s Green Paper on Long-term financing.

Thierry Philipponnat, Secretary General of Finance Watch, said: “Only 5-7% of current bank lending relates to SMEs, while the average holding period for shares has fallen dramatically.  We urgently need more long-term productive capital allocation if the next generation is to thrive and meet the challenges of tomorrow.”

Philippe Herzog of Confrontations Europe said: “Regulators face two huge challenges: they must change the focus of investors towards patient finance and social value. And they must re-shape the financial system to serve society again by balancing prudential rules with the needs of long-term financing.”

Keynote speaker Philippe Maystadt, Honorary President, European Investment Bank, told the conference that better calibration of capital and other regulation was needed to avoid regulatory bias against long-term financing, and advocated EIB involvement in project bonds. Oliver Guersent, Head of Michel Barnier’s Cabinet, European Commission, updated the conference on the Commission’s work programme and said that financial stability was a precondition to sustainable growth.

Key points from the panel discussions on SME financing and on long-term financing included:

  • Better information for investors.  Financial reporting should reflect more intangible factors including ecological and social sustainability indicators in order to give the right signals to longer-term investors.  In addition, there is a strong debate on the role played by accounting standards.
  • Bigger role for public investment banks. Public banks such as the EIB could share investment risk with private investors through mezzanine funding, or by taking subordinated tranches of project bonds to increase the ratings of senior tranches. They could reduce the volatility of borrowing costs and play a role for projects that take 15-20 years to produce a profit.
  • Stronger role for banks in financing SMEs.  A range of suggestions included more prudent and transparent securitisation of SME loans, creating a system of originate-and-share where banks could share SME credit risks with public institutions, and encouraging banks to return to a closer and more personal relationship with their SME customers.
  • Clearer incentives for asset managers. Pension funds should be natural long-term investors but are hindered by a fixation on relative benchmark performance, an absence of suitable fiduciary obligations, and principal/agent problems deriving from the outsourcing of investment decisions to consultants.
  • Other suggestions included more government guarantees and investment for R&D and infrastructure, steps to boost smaller company brokers, more employee participation, private placements between corporates, addressing problems with savings policies and fiscal harmonisation.

A detailed summary of the event, including full list of speakers, can be found here.

Photos and audio files from the event are available here.

ENDS

For further information, please contact:

Greg Ford, Finance Watch, on +322.401.8740 or +44 7703 219 222 or greg.ford@finance-watch.org

Charlotte Geiger, Finance Watch, on +322.401.8741 or charlotte.geiger@finance-watch.org

Marie-France Baud, Confrontations Europe, at mfbaud@confrontations.org

Nicole Alix, Confrontations Europe, at nalix.confrontations@gmail.com

NOTES FOR EDITORS

On 25 March 2013, the European Commission published a Green Paper entitled “Green paper on long-term financing of the European economy”. The paper launches a three-month public consultation, with a deadline of 25 June 2013, on what can be done to overcome the barriers to fostering the supply of long-term financing and improving and diversifying the system of financial intermediation for long-term investment in Europe.

EC consultation page

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