TY - CEPII
A1 - Natacha Valla
A1 - Jesper Berg
A1 - Laurent Clerc
A1 - Olivier Garnier
A1 - Erik Nielsen
TI - A holistic approach to ECB asset purchases, the Investment Plan and CMU
IS - 2015-07
T3 - CEPII Policy Brief
KW - ECB
KW - Capital Markets Union
KW - cross-border capital flows
KW - policy strategy
KW - securitization
N2 - To stimulate and finance investment in Europe the three “policy stars” of Europe need to be aligned: the Capital Markets Union initiative, the €315bn Investment Plan, and the ECB’s €1,100bn asset purchase scheme. They jointly face a unique set of issues. First, the resilience and the cyclical performance of the European bank based system needs to be improved. Second, the “right” markets need to be developed for banks to outsource risks without jeopardising financial stability. Third, cross-border risk-sharing urgently needs to be rebalanced, because it has become, in the wake of the Great Recession, overly reliant on debt instruments as opposed to equity. We argue that to achieve alignment between initiatives, an overall strategic vision could:
● Set an explicit, holistic strategy, ensuring that the instruments in the Investment Plan receive appropriate regulatory treatment within the CMU, and are eligible to the ECB’s purchase programme and collateral.
● Set a strategic objective for the euro area financial structure. It could be a “spare wheel” model where (i) banks would remain predominant (with capital markets as a countercyclical “spare wheel”), and (ii) banks would outsource risk through covered bonds (with untranched securitisation acting as the “spare wheel”).
● Proactively promote equity instruments in all three policy initiatives for more sustainable cross border risk sharing.
● Promote a new business model for “credit assessment” with a value chain featuring the credit information collected by commercial and central banks.
● Re-orientate the ECB’s purchases away from sovereign debt instruments towards the instruments that will finance the Investment Plan, those of the so-called “agencies”, and private sector assets.
● Formally involve NPBs in the Investment Plan, preferably in the equity of the EFSI Fund.
● Improve the governance of public investment ex ante via independent, supra-national investment committees, and ex post via strict disciplinary measures.
● Be pragmatic but tangible in the objectives set for the Capital Markets Union (focus on cross-border insolvencies and improve national business environments).
ER -