FESSUD addressing the policy debate on Capital Markets Union in Brussels

Tuesday, 29 December 2015

On 9 December 2015, PLS organised a policy-oriented workshop on Capital Markets Union (CMU) at the European Parliament. The discussions were based notably on four years of research on the stakes and processes of financialisation in the frame of the FESSUD project. The debates have led to the conclusion that the revival of securitisation and more generally the CMU would not play the salutary role that some foresee in terms of growth, employment and boosting of SMEs and start-ups...

The workshop was organised by PLS on behalf of the FESSUD project in reaction to the European Commission’s Action Plan on Building a Capital Markets Union. It was hosted by Paul Tang, Member of the European Parliament and Member of the Committee on Economic and Monetary Affairs, and targeted mostly Brussels-based policy-makers. A variety of stakeholders were represented in this workshop: Permanent representations of Member States, Members of the European Parliament, civil society organisations, as well as traditional banks, cooperative banks or leasing companies.

Capital Markets Union (CMU)

The Capital Markets Union (CMU) is one of the main initiatives of the European Commission. Its objectives are to support the creation of jobs and growth by unlocking long-term investment in Europe and removing financial barriers between the 28 EU Member States with the aim to support Europe’s businesses. Non-banking lending – also called shadow banking – is at the core of the European Commission’s Action Plan on building a Capital Markets Union. One of the key legislative proposals attached to the CMU will be a framework to support the revival of securitisation, which raises fundamental questions in light of the FESSUD research.

Will the CMU create jobs and help finance SMEs?

During the panel entitled ‘Will the CMU create jobs and help finance SMEs?‘, it was agreed that there is no need for more private capital than there currently is. As a matter of fact, it was highlighted that interest costs for SMEs have even been going down for the last 3 years. Therefore, attention should be put on the demand side, which is currently defaulting from the point of view of SMEs. Stefanie Schulte, from Rheinisch-Westfälischer Genossenschaftsverband, representing a German cooperatives including banks, insisted on the fact that a larger capital market will not help EU SMEs, because capital markets instruments are not suitable for most SMEs: lending to SMEs requires very good knowledge of both the individual companies and the regional economy. What SMEs therefore really need is strong, small local banks. The case of start-ups was also discussed, with the general remark that the latter need equity funding through venture capital rather than securitisation, as they usually struggle to get loans. Other contributors to this panel were FESSUD researchers Malcolm Sawyer and Daniela Gabor.

What are the positives and what to watch out for in Simple, Transparent and Standardised Securitisations?

The second panel focused on the positives and critical points of the 'Simple, Transparent and Standardised Securitisations‘ proposal. Although the European Commission’s proposal appeared to enable a greater transparency in the Data Warehouse, the simplicity of the procedure was deemed far from the initial goal, to the detriment of SMEs. Later on, the debate broached the subject of tranching, which the proposal allows: whereas the action plan foresees a 5% retention requirement aimed at addressing conflicts of interest, it was recommended that the latter should be raised to 15%. Finally, it was concluded that in order to regain the trust of investors, we should foster a tight robust framework that ensures its soundness and trust thereof. This panel was addressed by FESSUD researcher Giampaolo Gabbi (Siena) and Katarzyna Hanula-Bobbitt from Finance Watch.