Capital Markets & SMEs

Retail and savings banks are indispensable actors for long-term financing of the EU economy.

>> ESBG position on Capital Markets Union

>> High-level principles on SME feedback

ESBG overall position on SME finance

SME finance is best provided by banks and not capital markets, as banks have the deposits that can be transformed into adequate lending as well as contact with local communities.To allow lending to remain at adequate levels, bank lending activities must not be penalised by future regulations when the economy recovers. Basel III requirements, in particular liquidity rules, would constrain EU banks' lending capacities, hitting SMEs that may not have easy access to other sources of funding.

Bank lending: a fundamental source for SMEs

ESBG considers that in the current real economy, bank lending is a fundamental source of long-term financing, especially for the SME-sector. Favouring one model over another – in this case capital market funding vs. bank funding – is the wrong approach when addressing the issue of decreased bank lending. Because capital markets can only complement the role of bank lending, the role of banks must continue to provide long-term financing and to protect depositors, whereas other intermediaries', such as asset managers, role is not to protect depositors but to provide returns. If the banks are not assessing or taking the risk for the transformation of deposits into long-term investments, then the saver directly takes the risks.

Financing infrastructure projects

Nevertheless, ESBG acknowledges that infrastructure projects can no longer be financed through bank loans only. Economic and regulatory changes have generated the need for new financing models in order to fill the gap between available bank capital and the multi-trillion-euro medium-term investment programmes, especially in Europe. To do so, partnerships between banks and institutional investors should be developed to benefit from the know-how of banks and the investment capacity of institutional investors.

Background

During the first G20 Finance Ministers and Central Bank Governors' meeting of Russia's Presidency, held on 15-16 February in Moscow, the G20 cited long-term financing as crucial for innovation financing, research, and future infrastructure. As a result, a main objective was established by the G20 members to foster and increase the capacity of banking institutions to channel savings to long-term investment projects.

Sharing this assessment, EU Commissioner Michel Barnier elaborated on how, despite the high amount of savings and investment arriving from outside the EU, long-term investment has slowed down in Europe owing to:

the "eviction" effect of public deficits;
the liquidity race of some asset managers;
the lack of tools comparable to UCITS for long-term investment in less liquid and non-listed securities;
the on-going changes in the banking industry that may result in further financing difficulties.