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Europe's Untapped Capital Market

Europe's Untapped Capital Market

Diego Valiante


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Book Details


The quality of financial integration is one of Europe’s principal concerns in the aftermath of the great crisis. The lack of risk sharing lies at the heart of the financial instability produced by the rapid retrenchment of capital flows within national boundaries. The limited cross-border banking and capital markets activity is unable to provide investors with the necessary risk diversification to allow economies to withstand asymmetric shocks.

This book builds on a year-long discussion with a group of academics, policy-makers and industry experts to provide a long-term contribution to the Capital Markets Union project, launched by the European Commission in 2015. It identifies 36 cross-border barriers to capital markets integration and provides an organic plan, consisting of 33 policy recommendations, to relaunch EU financial integration. These aim to improve the key components of cross-border capital market transactions: price discovery, execution and enforcement. It also provides a comprehensive overview of the current structure and the state of integration of Europe’s capital markets.
Diego Valiante, PhD, is Head of Financial Markets and Institutions at the Brussels-based EU think tank, the Centre for European Policy Studies (CEPS). He is also a member of the Group of Economic Advisers (GEA) of the European Securities and Markets Authority (ESMA).

Table of Contents

Section Title Page Action Price
Europe's Untapped Capital Market cover
Table of Contents vii
Foreword xiii
Preface xv
Members of the European Capital Markets Expert Group xvii
Executive Summary 1
I. Building Europe’s capital market: Guidelines for an action plan 1
Policy recommendations 4
II. Financial integration policies: A historical overview 15
III. Financial integration, risk sharing and economic growth 16
IV. Rationale for more capital markets integration 17
V. Integration and structure of Europe’s capital markets 20
VI. Summary table: Selected cross-border barriers* 25
Introduction 27
1. A brief history of EU policies for financial integration 28
1.1 The first wave of financial integration 29
1.2 The second wave of financial integration 31
1.3 The third wave of financial integration 37
1.4 EU financial integration policies: a recap 40
2. Does Europe need more capital market integration? 45
2.1 Financial integration and risk sharing 45
2.2 Determinants of financial structure and development 59
2.3 Financial development and economic growth 66
3. European financial market structure and integration in the CMU era 73
3.1 Europe’s financial structure: the international and regional dimension 73
3.1.1 Funding structure of non-financial corporations 81
3.1.2 HousFiniHouseholds’ financial assets structure 87
3.1.3 Matching households’ assets and NFC liabilities 91
3.2 Financial integration in Europe: evidence from the euro area 95
3.3 Capital market-based intermediation in Europe 99
3.3.1 The structure of the dealer bank industry 99
3.3.2 Asset management in Europe 106
3.4 Integration in Europe’s financial markets 126
3.4.1 Equity markets 127
3.4.2 Debt securities markets 141
3.4.3 Derivatives markets and securitisation 156
3.4.4 Exchange-traded products 164
4. A single market for capital in Europe: designing an action plan 169
4.1 Defining Capital Markets Union (CMU) 169
4.2 A diversified financial ecosystem 173
4.3 Financial contracting in market-based systems 177
4.4 A barriers removal test 181
4.5 Price discovery 187
4.5.1 Information on the underlying asset 188
4.5.2 Financial instrument information 198
4.6 Execution 204
4.6.1 Entry procedures 205
4.6.2 Exit procedures 209
4.7 Enforcement 213
4.7.1 Public enforcement 214
4.7.2 Private enforcement 223
4.8 Integration barriers: a quick recap 236
References 241
Annex 1. Matching objectives and proposals of the CMU action plan 257
Annex 2. Task Force Members and Observers 259
Annex 3. List of Abbreviations 263