4 Dec 2017

New report on impact of banking reforms on European capital markets and the real economy

Press release also available in: French, German, Italian, Spanish

The Association for Financial Markets in Europe (AFME) has today published a new report highlighting the significant impact that key elements of the Commission’s Risk Reduction Measures (RRM) legislative package can have on Europe’s capital markets and the real economy.

The report entitled The links between the Risk Reduction package and the development of Europe’s capital markets explains why the legislative proposals presented by the European Commission in November 2016 should not be considered in isolation, but rather in light of the significant links they have with capital markets and the broader economy.

Stefano Mazzocchi, a Managing Director and Deputy Head of AFME’s Brussels office, said: “The Commission’s Risk Reduction Measures package represents an important further step towards the completion of the regulatory efforts aimed at strengthening the resilience of banks and consolidating the stability and soundness of the financial system. It is therefore broadly supported by AFME and its members. At the same time, if some of the key elements of the legislative package are not addressed, it could have significant negative implications for market liquidity and run counter to the Commission’s objective of further developing Europe’s capital markets. As such, our latest report sets out to illustrate what a more appropriately calibrated approach could look like.”

Matti Leppala, Secretary General of PensionsEurope, welcomed the report and said “International and EU banking legislation (in particular NSFR and Leverage Ratio) should recognize the potential effects on end users. In this context, it is important for instance that high quality governments bonds are recognised as collateral in derivative transactions in order to improve financial stability and reduce liquidity risks for, amongst others, pension funds. More generally, a granular assessment of the implications of the banking reforms for market participants is important.”

The report sets out 8 clear case studies which explore the potential impact of the RRM on capital markets, products and transactions – which are crucially important for market liquidity and for the end-users of capital markets – and presents proposals aimed at achieving a more proportionate treatment.

The report also gives a concise overview of the elements of the RRM package which are particularly significant for capital markets, such as the Net Stable Funding Ratio (NSFR) and the Fundamental Review of the Trading Book (FRTB). All these components are necessary and supported by AFME, however, without reconsideration of some specific aspects - including their calibration, the timing of their introduction, as well as safeguards for globally consistent implementation - the negative impact on the end-users of capital markets, and on the objective of developing deeper and more liquid bond and equity markets, would be significant.

The full report can be downloaded here.