​​Long-term Financing

During the first G20 Finance Ministers and Central Bank Governors' meeting of Russia's Presidency, 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.

On 20 March 2013, the European Commission adopted a Green Paper on the long-term financing of the European economy along with a public consultation. Its purpose was to initiate a broad debate about how to foster the supply of long-term financing and how to improve and diversify the system of financial intermediation for long-term investment in Europe. An important question was whether Europe's historically heavy dependence on bank intermediation in financing long-term investment will give way to a more diversified system with significantly higher shares of direct capital market financing and greater involvement of institutional investors and other alternative financial markets.

ESBG position

ESBG considers that in the current situation of the real economy, bank lending is a fundamental source of long-term financing, especially for the SME sector. Therefore, ESBG disagrees with the approach of favouring one model over another – capital market funding vs. bank funding – when addressing the issue of the decrease in bank lending. The role of banks is 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 investment, then the saver is directly taking the risks.

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.

As for access to finance for SMEs, ESBG acknowledges it 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.

​Key messages

To allow lending to remain at adequate levels, it must be ensured that bank lending activities are not penalised by future regulations when the economy recovers. ESBG is under the impression that the Basel III requirements, and in particular the liquidity rules, would constrain the lending capacities of European banks, which would be detrimental in particular for SMEs that do not necessarily have easy access to other sources of funding. ESBG is confident that banks, in particular retail and savings banks, are indispensable actors in the long-term financing of the EU economy.

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