European Central Bank: synergies between banking union & capital markets union
Keynote speech by Vítor Constâncio, Vice-President of the ECB, at the joint conference of the European Commission and European Central Bank on European Financial Integration, Brussels,19 May 2017.
Banking union and capital markets union are undoubtedly the two central policy initiatives to catalyse financial integration in the EU. Consequently, they received a great deal of attention in the ECB’s report on Financial Integration in Europe over the last years and stand at the centre of today’s conference. The benefits of the two initiatives are known. Banking union increases the resilience of the banking sector, facilitates sector consolidation and enhances the cross border credit market, expanding its financing capabilities and reducing intermediation costs. Capital markets union contributes to diversify sources of finance for our economies and creates a risk-sharing channel that helps smooth out incomes and consumption via cross-border holdings of financial assets. In this perspective, I welcome the initiatives by the Commission in the context of the review of the CRD IV/CRR and of the second communication regarding the progress of capital markets union.
In the past, it was sometimes argued that banks and capital markets were competing with each other for a limited amount of viable investment opportunities. Some have even seen capital markets as threatening traditional banking models. However, banks and capital markets are rather closely interconnected as parts of the wider financial system: banks and markets complement each other in financing the real economy. Therefore, we should not treat banking union and capital markets union as two mutually exclusive projects but rather see them as mutually reinforcing initiatives that can bring the Single Market for financial services to the next level. In my speech today, I will argue that there are very good reasons to think about banking union and capital markets union together, to capture the synergies between them and to work on overcoming the impediments that constrain both of them.
The need to reap these synergies is particularly compelling at this crucial moment in time, in which the U.K. has announced its departure from the EU. The prospect that the largest financial centre in Europe will drift away from the EU27 Single Market brings a number of specific challenges and opportunities for the further development of the banking union and capital markets union.
On the one hand, London is an important provider of financial services to firms in the EU, in particular as regards capital market services. In the future, firms may have less access to these financial services and to U.K. capital markets and these services may need to be relocated to or developed in the EU27. This process of business relocation and development needs to be managed, notably from a regulatory and supervisory perspective.
On the other hand, the departure of the largest non-banking union Member State is an opportunity to explore the interlinkages between capital markets union and banking union. All remaining 27 Member States have a vital interest in the success of both policy initiatives thus furthering financial integration.
Let me therefore now go into more detail on how banking union supports capital markets union and vice-versa.
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