Benoît Cœuré, a member of the executive board of the ECB, recently spoke about priorities and challenges facing European capital markets.
He asserted that finance market fragmentation has become an increasingly significant issue on a global level, being driven by a range of factors from technological developments to political protectionism. While he noted that certain manifestations of market fragmentation could bring benefits such as mitigating cross-contagion risks, in the eurozone low risk sharing across boarders carries the prospect of country-specific shocks having unduly material echoes across the eurozone.
M. Cœuré said that Brexit must lead to increase capital market across the EU, to accomodate the expected relocation of over €1 trillion in assets from the UK. He proposed that the approach to achieving this should focus on three areas in particular:
- harmonisation of insolvency frameworks, in order to safeguard trust and legal certainty for issuers and investors;
- supervisory convergence and the oversight and supervision of central counterparties; and
- diversification of external funding for the real economy, moving away from the current reliance on bank lending, and in particular addressing the post-Brexit gap created by the additional restrictions that will be placed on UK private equity funds wanting to market in the EU.