Capital Market Union, a new buzz in EU

1. Capital Market Union:
Is Eurosystem ready for it?

2. What is it?
• No concrete or official definition
• The harmonization of rules across Member States in
order to eliminate the barriers that prevent the
integration of capital markets
What is not?
• Merger of European stock exchanges
• Reducing bank financing

3. Five Pillars
• Removing the remaining obstacles to free movement
of capital
• Transparency
• Spreading best practices
• Standardisation
• Coordinating taxation

5. “Jobs, Growth and Investment” Package
• Improve the investment environment
• Long-term financing of the economy such as revival
of Securitisation market
• Lowering the costs of raising capital
• Finding channels other than banks for companies'
funding

6. Financial instruments
• Securitised bank loans
• Shadow banking
• Bonds
• Private placements
• Equity
• Venture capital
• Securities trading

8. Five main benefits
• Providing finance for the economy
– Sluggish growth rate
– “EU Importance 2020” – Transport , Energy and
telecom sector - € 1 Trillion??
– Banks are unable to finance after the crisis
– Need for alternative financing options (Less
developed)
– “Bank-Centric” Europe. Bank finances are four times
of its GDP. U.S only 80%
– In U.S only 30% of the finance is from banks whereas
in Europe it is 70%

9. Five main benefits
• Helping to absorb shocks
– “Bank-Centricity” magnified the original crisis
– CMU can act as a shock absorbers
• Enabling more effective monetary policy
– Quantitative easing
– Example – US Federal Reserve, Bank of England
and ECB
– ECB is prohibited from monetary financing
– But, when annual inflation rate 0.3%, ECB bought
Asset backed securities

10. Five main benefits
• Creating more competitive markets
– Bank Centric financial system which is not
competitive as it should be
– In most of the member states, to five lenders
have a combined market shares of 60%
– Banks finances well established business
– SMEs or sectors which are in need of capital
are ignored
• Providing the UK with another good reason to
stay in the EU

11. Challenges
• Long and complex legislative process
• A significant structural change for the
European financial system (Time)

12. References
• "A Capital Markets Union Could Be next Thing in EU's In-tray." | Reuters. 3 July 2014.
Web. 14 Nov. 2014. <http://uk.reuters.com/article/2014/07/03/uk-eu-markets-idUKKBN0F814O20140703>.
• Abascal, María, and Lucía Rodríguez. "A Capital Markets Union for Europe: Preliminary
Reflections." Banco Bilbao Vizcaya Argentaria S.A. Web. 14 Nov. 2014.
<https://www.bbvaresearch.com/en/publicaciones/a-capital-markets-union-for-europe-preliminary-
reflections/>.
• Dixon, Hugo. "Unlocking Europe’s Capital Markets Union." Center for European Reforms.
CER, 31 Oct. 2014. Web. 14 Nov. 2014.
<http://www.cer.org.uk/sites/default/files/publications/attachments/pdf/2014/unlocking
_europes_capital_markets_union_hugodixon_15.10.14-9870.pdf>.

13. • Hill, Jonathan. "Hearings of European Commissioners-designate." Europarl. European
Union, 30 Sept. 2014. Web. 14 Nov. 2014.
<http://www.europarl.europa.eu/EPRS/Commissioner_hearings/EPRS-Briefing-538940-
Financial-Stability-Financial-Services-and-Capital-Markets-Union-FINAL.pdf>.
• Wilson, Karen. "Bruegel." Crowdfunding: Broadening Europe's Capital Markets. 10 Oct.
2014. Web. 14 Nov. 2014. <http://www.bruegel.org/nc/blog/detail/article/1456-
crowdfunding-broadening-europes-capital-markets/>.
• OECD (2013), Science, Technology and Industry Scoreboard 2013, calculations based on
PwCMoneyTree, EVCA/Thomson Reuters/PwC and EVCA/PEREP_Analytics