Efficient capital markets as a source of financing

The transformation of the economy towards greater climate neutrality and digitalization is one of the defining tasks of our time. To successfully shape it and overcome associated challenges, the existing financing needs must be fulfilled. Banks will live up to their responsibility and contribute to the financing, however, the existing funding and lending options are not sufficient to cover the enormous investment demands. It is very important to tap into additional sources of financing.

Efficient capital markets and regulation

Capital markets can raise private capital and hold enormous potential as a source of financing for investments when it comes to overcoming these challenges. This is currently not being fully utilized, as various barriers prevent efficiently functioning capital markets in the EU. The regulatory framework must be further improved and the Capital Markets Union (CMU) strengthened as a project that should be pursued with high priority in the upcoming legislative cycle.

The European Commission's action plans to date contained good and sensible approaches, particularly with a view to achieving more consistent requirements. For example, as part of the MiFIR review, improvements to transparency in the securities business abolished or simplified unnecessarily complex regulation. The intention of making the clearing of derivatives in Europe more attractive is welcome.

However, many measures that followed the CMU action plans were overly detailed and did not contribute to achieving a functionable overarching framework. The extensive legislative proposals of the Retail Investment Strategy (RIS) are perceived by market participants as a step backwards. They increase complexity and send the wrong signals by exclusively emphasizing risks instead of promoting opportunities. For example, issuers should measure the intrinsic value of a capital market product ("value for money") which would complicate the securities business instead of streamlining and opening it to more investors. The so-called "information overload" is only inadequately reduced and cannot promote a culture of investing in securities in a meaningful way - investors are put off instead of being attracted to the capital markets investing. The Listing Act also showed that even well-functioning regimes such as the Prospectus Regulation are further detailed without any added value for furthering the Capital Markets Union. Frequent issuers solely face additional costs.

There is thus an urgent need for readjustment and new or more detailed regulation should only be proposed where absolutely necessary. By contrast, unnecessary requirements should be pro-actively reduced. The resulting relief would benefit everyone.

Strengthening loan transfers as a bridging instrument

We advocate for easing the regulatory burden on loan transfers. Securitizations are an instrument that can significantly contribute to covering the financing needs of the transformation to a climate neutral economy. Securitizing loans enables banks to mobilize capital and free their balance sheets for new lending. With their bridging function, loan securitizations are also able to provide SMEs across Europe with access to financing through capital markets and represent an urgently needed source of financing. Unfortunately, the previous revisions of EU legislation relevant  for securitizations (STS Regulation, CRR) have not led to a sustainable revival of the European securitization market. A transitional provision in CRR III has at least reduced additional burdens on securitizations. This transitional rule should be made permanently available to banks including institutions that use the standardized approach. Overall, there should be a comprehensive review of the regulatory framework for securitizations in the next legislative period with the purpose of substantially reviving this market.