Conference Presentation, Fireside Chat, Panel, Roundtable
Goldman Sachs Economists on EU Capital Markets Union: Talks at GS Session Highlights
- Anticipates a European economic recovery shifting focus from crisis management to addressing structural growth issues, driven by the implementation of Capital Markets Union (CMU) to reduce reliance on bank lending.
- Projects the European banking system will need to significantly shrink once ECB support ends, requiring capital markets to fill the resulting credit void.
- Envisions a regulatory future characterized by "re-regulating" to harmonize fragmented bankruptcy, clearing, settlement, and securitization laws across the region.
- Expects the high-yield bond market to have grown at a 30% compound annual rate over the past six to seven years, with continued development anticipated in the institutional loan market.
- Identifies specific European strengths including the globally exported UCITS fund structure and a trend where European companies have raised more IPO capital than US counterparts in the prior year and the current first quarter.
- Plans to force savings away from sovereign bonds into the real economy through regulatory changes and anticipates a "bank loan to bond trend," while acknowledging the current market fragmentation involving 19 groups, 30+ exchanges, and 21 clearinghouses.
- Proposes utilizing securitization routes, such as pooling credit card debt, mortgages, and student loans, as the primary method to connect SMEs to capital markets due to their lack of natural public funding.
- Highlights a major challenge where asset managers cannot invest due to information gaps regarding assets, particularly among SMEs, and calls for standardized accounting sheets and technology to facilitate electronic aggregation over the next five years.
- Seeks to unlock capital from retail investors by allowing access to floating rate loan products and prioritizes the implementation of compulsory pension contribution schemes or altered enrollment options across all European countries.
- Forecasts that infrastructure financing will drive demand for long-dated yield assets, pressuring policymakers to ensure consistency in regulations to mitigate risks associated with government election cycles.
- Predicts a potential crisis scenario where a shrinking banking system and exhausted government funds coincide without adequate capital market mechanisms, while viewing the dialogue on these reforms as an ongoing process potentially extending to 2019 or beyond.
- Expresses a preference for market-driven solutions with regulatory intervention only occurring when the market fails, noting a pragmatic approach from current leadership.