The Noyer Group published its final report on April 25. The working group, chaired by Christian Noyer, former Vice President of the ECB, was initiated by French Finance Minister Bruno Le Maire. At the beginning of the year, it was entrusted with the task of developing proposals for the revitalisation of the Capital Markets Union.
Key results of the Noyer Group
The final report highlights the challenge Europe is facing: The green and digital transformation will require additional investments of 1 trillion euros per year by 2030. In particular, the path to Net Zero requires a high level of investment, which European banks cannot finance through their balance sheets alone. Europe needs a functioning capital market union in order to master the tasks ahead. The final report contains three key proposals for achieving this goal:
1. Development of European long-term savings products that invest primarily in the EU economy
At 13.3%, the savings rate in Europe is one of the highest in the world. However, many long-term investors invest their money outside Europe. In return, many European companies obtain their equity from non-EU investors. This trend must be reversed and European money must be kept in Europe. The Noyer Group therefore recommends the development of attractive long-term products (including tax benefits) that help to redirect savings into the European economy. The working group estimates the potential at EUR 200 billion in additional capital per year.
2. Revitalisation of the European securitisation market
The final report emphasizes the importance of securitisation as an essential tool for financing the European economy. The Noyer Group focuses in particular on the distribution of risks, which other financial products such as covered bonds cannot achieve to the same extent.
The measures called for are not new and have already been voiced at various political levels. The Noyer Group is now calling for a concrete implementation plan for the following topics:
- Correction of capital requirements for banks and insurance companies (adjustment of p-factor and risk weight floors for banks and risk weights under Solvency II)
- Improvement of LCR eligibility (increase from level 2b to level 2a for senior tranches in STS securitisations and granting of level 2b status for senior tranches in non-STS securitisations)
- Simplification of disclosure requirements, particularly for private securitisations
- Extension of regulatory relief also for securitisations that could not previously be presented as STS
These measures are intended in particular to help broaden the investor base.
In addition, the Noyer Group is proposing a European securitisation platform to achieve a higher degree of standardisation. This is aimed in particular at low-risk asset classes such as RMBS. The platform is to be supported by, among other things, national guarantees based on the size of the securitised assets. By boosting the securitisation market in this way, the Noyer Group hopes to raise up to 1.5 trillion euros in additional credit capacity.
3. Creation of integrated supervision of the capital markets
A genuine capital markets union requires efficient and clear supervision, which is in the hands of one institution. However, the current supervision of the capital markets is highly fragmented and responsibilities are sometimes unclear, which leads to inefficiencies such as double reporting. The Noyer Group is therefore proposing the expansion of ESMA’s powers and the introduction of a central, permanent supervisory body.
Furthermore, the revision of the European settlement systems is recommended.
Assessment
The Noyer Group’s final report includes an extensive and detailed elaboration on the challenges of implementing the European Capital Markets Union. We see a high priority initially in the urgently needed improvements to the regulatory and supervisory framework for securitisations (see section 3.2 of the report). These include the reduction of capital requirements for banks and insurance companies, the adjustment of liquidity regulations in line with other classes of securities and a significant reduction in bureaucracy for a number of provisions of the Securitisation Regulation. The transparency regulations and due diligence requirements should be mentioned here in particular, but the rules for the successfully established quality segment STS also need to be improved.
The additional proposals for a securitisation platform (see section 3.3 of the report) are interesting and should be checked for their feasibility in Europe.
TSI is accompanying the further discussion on the revival of the securitisation market together with our TSI partner network and European partners.