In a speech to the European Banking Congress in Frankfurt on 17 November 2023, Christine Lagarde, president of the ECB, has said the transition to a green economy and capital markets funding are failing in Europe.
“We will not succeed in these transitions if we don’t get the Capital Markets Union (CMU) back on track,” she said. There are two ways in particular in which Europe is being held back, she noted, firstly that small to medium enterprises (SMEs) cannot tap into capital markets, with the lack of capital market evolution impacting banks’ ability to grant riskier loans, and secondly that “underdeveloped capital markets” which prevent start-ups getting access to the level of financing needed. “The creation of the Securities and Exchange Commission (SEC) in the 1930s [in the USA] played a pivotal role in suppressing state efforts to fragment securities markets,” she said. “The European Securities and Markets Authority (ESMA) does some of that in the EU, but it is not truly single. Supervision remains largely at the national level, which fragments the application of EU rules. In fact, enforcement powers are often split across several national regulators.” She added, “Creating a European SEC, for example by extending the powers of ESMA, could be the answer. It would need a broad mandate, including direct supervision, to mitigate systemic risks posed by large cross-border firms and market infrastructures such as EU central counterparties.” However, she also noted that a single rulebook would be crucial, giving as an example the banking union which was launched with single rulebook applicable for all banks. “To mitigate fragmentation in EU capital markets, a more ambitious approach should involve the creation of a single rulebook enforced by a unified supervisor. That would empower private entities to expand their ambitions in fostering high-growth private investments. Finally, a truly European capital market needs consolidated market infrastructures – and this is where the private sector can show its determination, too.” Here she backed the creation of a European consolidated tape to encourage a shift towards larger, cross-border integrated market infrastructure and exchange groups. “Research shows that stock markets that are part of wider groups perform better in terms of depth, IPO activity and liquidity, and this group effect proves to be particularly powerful for smaller exchanges,” she said.
©Markets Media Europe 2023
