The EU internal markets commissioner is to announce measures designed to reduce the dependence of European businesses on traditional bank funding, in a move that could benefit Ireland’s financial services industry.
Lord Jonathan Hill, Britain’s EU commissioner, will unveil plans for a “Capital Markets Union” tomorrow, in a bid to help businesses raise cheaper capital, improve the venture capital environment and develop the European securitisation market.
A draft of the proposal seen by The Irish Times shows a key plank of the commission's capital markets union is creation of a single securitisation market. It notes that while EU securitisation markets withstood the financial crisis relatively well, the market has remained subdued while the US market has recovered.
Risk transfer
“Securitisation can provide an effective mechanism to transfer risk from credit institutions to non-credit institutions, thus increasing the former’s capacity to lend”, the document states, referring to a European Council decision in June. “There is no intention to undo what has been put in place in the EU to address the risks inherent in highly complex, opaque and risky securitisation. However, this proposal will help to better differentiate simple, transparent and standardised products.”
Brian Hayes, a member of the European Parliament’s economics committee, said the proposal could have a big impact on the Irish financial services industry, given the importance of the securitisation industry to Ireland.
Non-bank lending
“Dublin is well-poised to get the benefits from the capital markets union. The emphasis on non-bank lending, models such as crowd-funding and venture capital already have a strong foothold in the IFSC,” he said, noting 10 per cent of the submissions received by the European Commission on its capital markets union emanated from Ireland. The initiative will also benefit SMEs, he said, which continue to experience bank finance difficulties .
The initiative comes amid concerns EU businesses are overly dependent on traditional bank funding – European businesses receive about 80 per cent of their funding from banks, in contrast to the US where businesses get most of their financing from the securities markets.
The announcement may signal a shift in the commission’s approach, following the departure of Michel Barnier as internal markets Commissioner last year. The French Commissioner introduced a raft of financial services regulation-.
Lord Hill is understood to be considering revisiting proposals introduced by his predecessor. Reduction of “red tape” and bureaucracy is a key demand of Britain as it seeks to renegotiate its relationship with Brussels.
