German banker expresses caution on capital markets union

A senior German banker has warned that the EU’s efforts to build a capital markets union should not be seen as a way of reducing the role of bank lending in funding the region’s companies.

The new president of the European Commission, Jean-Claude Juncker, has made a capital markets union one of his priorities, in an effort to inject new life into the region’s sluggish economy.

In contrast to their US peers, which get the majority of their financing from the securities markets, European companies traditionally receive about 80 per cent of their external funding from bank loans.

This can leave small companies, in particular, struggling to access funding when banks retrench, as they did in the years following the financial crisis – prompting calls for greater efforts to foster non-bank forms of funding.

However, Georg Fahrenschon, head of the German Savings Banks Association, said that although a capital markets union made sense, the project should not come “at the cost of traditional bank financing”.

“In many cases, traditional bank financing is ideal: well practised, and based on the fact that local banks know their customers over years, can judge them well, and can serve them very well,” said Fahrenschon. Copyright The Financial Times Limited 2015