Capital Markets Union and Beyond

by Allen, Faia, Langenbucher, Haliassos

ISBN: 9780262042765 | Copyright 2019

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Experts from economics, finance, law, policy, and banking discuss the design and implementation of a future capital market union in Europe.

The plan for further development of Europe's economic and monetary union foresees the creation of a capital market union (CMU)—a single market for capital in the entire Eurozone. The need for citizens and firms of all European countries to have access to funding, together with the pressure to improve the efficiency and risk-sharing opportunities of the financial system in general, put the CMU among the top priorities on the Eurozone's agenda. In this volume, leading academics in economics, finance, and law, along with policy makers and practitioners, discuss the design and implementation of a future CMU.

Contributors describe the key design challenges of the CMU; specific opportunities and obstacles for reaching the CMU's goals of increasing the economic well-being of households and the profitability and viability of firms; the role that markets—from the latest fintech developments to traditional equity markets—can play in the future success of CMU; and the institutional framework needed for CMU in the aftermath of the global recession.

Contributors
Sumit Agarwal, Franklin Allen, Valentina Allotti, Gene Amromin, John Armour, Geert Bekaert, Itzhak Ben-David, Marcello Bianchi, Lorenzo Bibi-Smaghi, Claudio Borio, Franziska Bremus, Marina Brogi, Claudia M. Buch, Giacomo Calzolari, Souphala Chomsisengphet, Luca Enriques, Douglass D. Evanoff, Ester Faia, Eilis Ferran, Jeffrey N. Gordon, Michael Haliassos, Campbell R. Harvey, Kathryn Judge, Suzanne Kalss, Valentina Lagasio, Katya Lagenbucher, Christian T. Lundblad, Massimo Marchesi, Alexander Michaelides, Stefano Micossi, Emanuel Moench, Mario Nava, Giorgio Barba Navaretti, Giovanna Nicodano, Gianmarco Ottaviano, Marco Pagano, Monica Paiella, Lubos Pastor, Alain Pietrancosta, Richard Portes, Alberto Franco Pozzolo, Stephan Siegel, Wolfe-Georg Ringe, Diego Valiante

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Contents (pg. v)
Foreword (pg. ix)
I. THE CHALLENGES IN DESIGN (pg. 1)
1. Capital Markets Union: Key Challenges (pg. 3)
The Plan (pg. 4)
The Rationale (pg. 6)
The Plan’s Strengths and Weaknesses (pg. 10)
Challenges to European Capital Markets (pg. 18)
Concluding Remarks (pg. 21)
Notes (pg. 22)
References (pg. 22)
Discussion: Capital Markets Union and Europe’s Financial Structure (pg. 25)
2. Capital Markets Union and Cross-Border Risk Sharing (pg. 29)
Capital Markets Union: The Main Policy Objectives (pg. 30)
Financial Structures and Consumption Risk Sharing (pg. 35)
Summing Up (pg. 39)
Notes (pg. 42)
References (pg. 43)
3. A Legal Framework for Financial Market Integration: Resetting the Agenda beyond the Sectoral Single Rulebook (pg. 45)
What Is the CMU? Origins and Evolution (pg. 48)
The Rise of the Sectoral Single Rulebook and Its Intersection with General Laws (pg. 49)
Company Law as a Bottleneck to a True Capital Markets Union, and What Can or Should Be Done about It (pg. 50)
Shaping a Response to the Invasive Capital Markets Regulatory Agenda (pg. 57)
Notes (pg. 62)
References (pg. 65)
4. Economic and Financial Integration in Europe (pg. 69)
Measuring Integration (pg. 70)
European Integration over Time (pg. 71)
The EU and Integration (pg. 72)
The EU or the Euro? (pg. 75)
Robustness (pg. 78)
Europe in Times of Crisis (pg. 79)
Conclusions (pg. 81)
Notes (pg. 82)
References (pg. 83)
Discussion: Economic and Financial Integration in Europe (pg. 84)
5. The Origins of a Capital Markets Union in the United States (pg. 89)
Part I: Some Introductory Evidence on US vs. EU Differences (pg. 92)
Part II: The Fragmented US Banking System (pg. 94)
Part III: The Rise of the Railroads and Large Industrial Companies: The Financing Mismatch between Fragmented Banking and Concen (pg. 99)
Part IV: Law Mattered to the US Capital Markets Union (pg. 102)
Part V: Conclusion (pg. 104)
Notes (pg. 106)
II. THE TARGETS: HOUSEHOLDS AND FIRMS (pg. 111)
6. Asset and Debt Participation of Households: Opportunities and Challenges in Eliminating Borders (pg. 113)
International Heterogeneity (pg. 114)
Potential Benefits from CMU (pg. 114)
Challenges on the Household Side (pg. 117)
Challenges on the Firm Side (pg. 119)
Challenges on the Regulatory Side (pg. 120)
Political Economy Challenges (pg. 122)
Technological Challenges and Opportunities (pg. 123)
Conclusion (pg. 123)
References (pg. 124)
7. Capital Markets Union and Growth Prospects for Small and Medium-Sized Enterprises (pg. 127)
SMEs Financing in Europe (pg. 129)
SMEs Financing: Market Failures and Solutions with the CMU (pg. 141)
CMU, SMEs, and the Single Market (pg. 151)
Taking Stock: CMU’s Specific Actions and Concluding Remarks (pg. 154)
Notes (pg. 157)
References (pg. 157)
8. The Promotion of Small and Medium-Sized Companies Acting as a Catalyst for European Capital Markets Law? (pg. 161)
Facts and Terminology (pg. 161)
SME: A Political Catchphrase (pg. 163)
Challenges for Medium-Sized Companies (pg. 165)
The EU’s Approach (pg. 166)
Timeline (pg. 167)
Different Instruments (pg. 168)
Summary (pg. 170)
Notes (pg. 171)
9. Recent Initiatives in Favor of Listed and Nonlisted Small and Medium-Sized Enterprises: A Legal Perspective (pg. 173)
Improving the Financing of SMEs: A Core Objective of the CMU Action Plan (pg. 173)
Fighting the Attrition of European Public Capital Markets (pg. 174)
Addressing the Financing Needs of Nonlisted SMEs (pg. 179)
Concluding Remarks (pg. 182)
Notes (pg. 184)
III. THE MARKETS (pg. 187)
10. The Role of Fintech for the Capital Markets Union (pg. 189)
Definition and Taxonomy (pg. 190)
Externalities (pg. 193)
Threats to Traditional Banking Systems (pg. 194)
Regulatory Challenges (pg. 195)
Europe and Fintech (pg. 196)
Conclusions (pg. 197)
Notes (pg. 197)
References (pg. 198)
Discussion: The Market for Crowd Funding and Peer-to-Peer Lending (pg. 200)
11. Equity Crowd Funding: An Acid Test for Securities Regulation (pg. 203)
Crowd Funding for Start-Ups (pg. 204)
Regulating Crowd Funding in the United Kingdom and the United States (pg. 206)
How Should Crowd Funding Be Regulated? (pg. 208)
Conclusion (pg. 210)
Notes (pg. 211)
12. Capital Markets Union and Virtual Funding: Initial Coin Offerings, Tokens, and Digital Corporations (pg. 215)
The Story of Stacy, Luke, and Frank (pg. 215)
Virtual Currencies and Private Law (pg. 219)
Virtual Lending and Banking Regulation (pg. 220)
Virtual Corporations and Corporate Law (pg. 220)
Virtual Tokens and Securities Law (pg. 222)
Tokens and the EU Definition (pg. 223)
Summary (pg. 223)
Notes (pg. 224)
References (pg. 225)
13. Equity Markets (pg. 227)
Institutional Background and Related Literature (pg. 227)
Methodology (pg. 228)
Conclusions (pg. 240)
Notes (pg. 240)
References (pg. 240)
Discussion: Taxation, the Level Playing Field, and Equity Markets (pg. 242)
14. Efforts to Deepen Capital Markets: Lessons from US Mortgage Defaults in the Global Financial Crisis (pg. 245)
Loss Mitigation Practices (pg. 246)
Mortgage Modification Determinants and Effectiveness (pg. 248)
Potential Public Policy Implications (pg. 252)
Conclusion (pg. 253)
Notes (pg. 254)
References (pg. 255)
IV. THE INSTITUTIONS AND GOVERNANCE (pg. 257)
15. The EU Response to the Financial Crisis and the Economic Recession: The Juncker Plan, the Capital Markets Union, and the Banking Union (pg. 259)
A Simple Model of the Macroeconomic Consequences of the International Financial Crisis: The Safety Trap Mechanism (pg. 260)
Consequences of the Safe Assets Shortage during the European Sovereign Crisis: The Piling up of a Lack-of-Investment-Driven Economic Recession in the EU (pg. 264)
The Role of the Juncker Plan: Fostering Investments via the Increase in the Supply of Safe(r) Assets (pg. 267)
Fighting Misallocation of Resources Due to Safe Asset Scarcity: The Role of the European Semester and of the Capital Markets Union (pg. 271)
The EU Response to the Financial Crisis through Bank Regulation and Its Impact on European Banks and the Overall Economy (pg. 277)
The Completion of the Banking Union: Work in Progress (pg. 282)
Conclusion (pg. 291)
Notes (pg. 292)
References (pg. 293)
Discussion: The EU Response to the Financial Crisis and the Economic Recession (pg. 296)
16. The Role and Structure of Banks in the Future Capital Markets Union (pg. 301)
Bank-Biased, Debt-Biased, and Fragmented (pg. 302)
The Shift away from a Fragmented Bank-Based System in the United States (pg. 307)
Benchmarking Europe to the United States (pg. 319)
Conclusion: CMU Needs More Concentrated Euro Area–Wide Banks (pg. 323)
Notes (pg. 325)
References (pg. 326)
Discussion: What Type of Banking System Is Needed to Accompany the Capital Markets Union? (pg. 328)
17. Interconnectedness: Shadow Banking and Capital Markets Union (pg. 331)
Interconnectedness and Systemic Risk (pg. 332)
Costs and Benefits of Interconnectedness (pg. 335)
Contagion (pg. 336)
Where Are the Risks? (pg. 337)
Data (pg. 338)
Notes (pg. 339)
References (pg. 339)
18. The Politics of Capital Markets Union: From Brexit to Eurozone (pg. 341)
The CMU’s Original Goal: To Avoid Brexit (pg. 342)
CMU and Brexit (pg. 345)
A Reinvented CMU for the Eurozone (pg. 347)
Conclusion (pg. 350)
Notes (pg. 350)
Discussion: Keep Calm and Carry on … with Small Steps! (pg. 353)
19. The Institutions of Europe’s Capital Markets Union (pg. 355)
The European Market for Corporate Control (pg. 356)
The Takeover Directive (pg. 357)
Golden Shares (pg. 358)
Cross-Border Company Mobility (pg. 359)
The European Company Statute (pg. 361)
Fragmented Supervisory Powers (pg. 362)
Conclusions (pg. 363)
Notes (pg. 363)
References (pg. 364)
Contributors (pg. 367)
Index (pg. 371)
Franklin Allen

Franklin Allen

Franklin Allen is Professor of Finance and Economics and Director of the Brevan Howard Centre at Imperial College, London.

Ester Faia

Ester Faia

Ester Faia holds the Chair of Monetary and Fiscal Policy at Goethe University Frankfurt.

Katja Langenbucher

Katja Langenbucher

Katja Langenbucher holds the Chair of Private Law, Corporate and Financial Law at Goethe University and is Affiliated Professor at l'Ecole de Droit de SciencesPo, Paris.

Michael Haliassos

Michael Haliassos

Michael Haliassos holds the Chair of Macroeconomics and Finance at Goethe University and is the editor of Financial Innovation: Too Much or Too Little? (MIT Press).