Remarks by Board member Olli Rehn at the seminar
CAPITAL MARKETS UNION – WHAT ARE THE PRIORITIES AND MEANS?
27 March 2017, Helsinki
European Commission Representation in Finland
‘Financial stability along with healthy and diverse sources of funding for the real economy are necessary conditions for economic growth and job creation,’ said Olli Rehn today in his remarks entitled ‘Why Capital Markets Union? – Resilience, Stability, Investment’.
‘In the euro area, a key reason for the slow recovery after the crisis was the delayed repair of the financial sector. The health and resilience of the banking sector were thereafter significantly improved through the creation of the Banking Union.
‘Capital Markets Union complements the Banking Union by increasing the use of market-based finance to boost investments and improving the resilience of the financial sector. These ultimate goals of Capital Markets Union are easy to agree upon, but the means are more contentious. Diversifying sources of funding to help European businesses grow and create jobs should set a minimum requirement for the process,’ said Dr Rehn.
‘The financial crisis showed the need for a continuous reform of legislation, not only due to the evolving financial markets. Experience from implementing regulation thus needs to be used to adjust the regulation itself. Only a decade after the financial crisis, the political will to coordinate financial regulation globally seems, however, in short supply. Any plans to aggressively roll back reforms of the financial sector are a cause for concern,’ Dr Rehn emphasized.
‘The systematic review process built into EU financial regulation offers a better, more gradual evidence-based alternative to ideological deregulation. After all, sustainable economic growth cannot be created through short-sighted deregulation of the financial sector. Deregulation increases the chances of a financial crisis that could lead to severe economic downturns.
‘From this perspective, attention also needs to be paid to the ‘branchification’ of the banking sector, where dependence on branches operated from outside the banking union, as witnessed in Finland, is increasing. The challenges to banking regulation and supervision posed by ‘branchification’ need to be adequately addressed in the reviews of EU financial regulation. Larger powers of the host country supervisor would support the financial stability of host and home countries alike, and reduce the room for regulatory arbitrage. At the same time, Finnish authorities remain neutral to banks’ decisions concerning their home country and play by the European rules, which are well-known and transparent,’ Dr Rehn concluded.