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ECB pushes for EU capital markets integration and development
- Euro area financial structure moves away from bank dominance as non-bank intermediaries assume greater role
- No broad increase observed in marketable financial instruments
- ECB sees scope for equity to play greater role in firms’ funding
- Development of equity markets could help decarbonise EU economies
According to the new European Central Bank (ECB) report on “Financial Integration and Structures in the Euro Area”, the financial structure of the euro area continues to be dominated by non-marketable instruments, despite an increase in financial integration in 2019. The share of listed equity and debt securities in the total financing of euro area countries remained relatively low compared with that of bank loans and unlisted equity, and has not changed much for many years now. Given that overall financial integration has not yet reached a satisfactory level and that euro area households, firms and governments would benefit from broader and deeper capital markets, the ECB expresses strong support for recent initiatives to advance with the European capital markets union (CMU) project. “The first phase of CMU delivered important results, but more can be achieved. Relaunching CMU should be a priority for the years ahead,” said ECB Vice-President Luis de Guindos about the report which focuses on structural developments in the financial sector.
The size of the euro area financial system has remained broadly unchanged in recent years, at six to seven times gross domestic product. The strong dominance of banks has been on the decline since the early 2000s, but this has been more than offset by a rise in the importance of non-money market investment funds and other financial institutions. Non-bank financial intermediaries, of which investment and pension funds are the fastest growing type, now account for almost 60% of total euro area financial assets. The report notes that this deserves attention, as it could reflect not only financial development, but partly also a migration of risks from the banking sector to less regulated sectors.
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