Speaking notes prepared for Christophe Nijdam, Secretary General of Finance Watch, ahead of his participation in the DG FISMA Public Hearing, “Next steps to build a Capital Markets Union”, Brussels, 8 June 2015
- The CMU’s promotion of securitisation is unlikely to increase the flow of capital into the economy. It would merely change the financing channel, at the cost of additional instability in bank funding structures and more expensive, less stable lending to companies.
- Attempts to transfer risk from banks to pension funds should not create additional moral hazard.
- The best way to promote borrowers’ needs would be to promote simple, stable financing channels with short intermediation chains, such as traditional bank lending.
- The best way to promote retail investors’ interests would be to ensure adequate protection against the risk of miss-selling that CMU might create, and ensure that investors understand that higher returns mean higher risk.
- Financial education of retail investors should not be designed to promote their participation in capital markets but rather to teach them basic concepts such as risk and reward
- There is no-trade off between consumer protection and high levels of investment, as the success of the UCITS framework shows.
- The alleged trade-off between financial stability and sustainable growth is a misleading conceptual approach because financial stability is a pre-requisite to long term stable growth.
- The shadow banking sector should be reduced in size in order to to be stable and for private backstops to work. Unfortunately, the EC is proposing to increase the size of shadow banking without any consideration for countercyclical backstops.
- In Finance Watch’s view, the securitisation measures in CMU are focused on improving the competitiveness of the financial industry, at the possible cost of financial stability.
- These measures will not improve the diversity of funding or the resilience of the financial system because the investors in the securitisations are already heavily interconnected with banks through the repo markets. Therefore it will merely increase interconnectedness and the risk of domino effedct;
- Capital market financing is a more collateral intensive activity than traditional bank lending, which will lead to a more procyclical and interconnected financial system
- Aspects of CMU are less aligned with reforms that seek to improve financial stability such as CRD IV and more with initiatives such as TTIP or Better Regulation that seems to target short term growth at any cost.
See also the EC’s event page and summary of the event, as well as Finance Watch’s other CMU publications.