Green paper long term investment

However, the simultaneous introduction of liquidity requirements for different financial market players may discourage investments in less liquid assets and hence block several possible financing channels for long-term investment at the same time. EIOPA will assess these measures by June 2013. The study, a ‘Green Paper’ which seeks to delineate the issues and provoke reflection, is the first output of the Assonime-CEPR project ‘Restarting European Long-Term Investment Finance’. [5]               The Commission Communication “Towards Social investment for Growth and Cohesion” (COM(2013)83) underlines the need for Member States to make more use of innovative approaches to financing in the social area, including by using participation of the private sector. The European Commission (DG Financial Stability, Financial Services and Capital Markets Union) and the Italian presidency of the EU Council chaired a conference on “Finance for Growth” at witch high level representatives of institutions, top financial corporations, policy makers and key stakeholders in this field exchanged views on perspectives for long-term finance in the UE. Restarting European Long-Term Investment. Green paper on long-term financing of the European economy – Frequently Asked Questions. The Commission has proposed reforms to improve market structure through the creation of new trading venues; enhance transparency and information efficiency; enhance requirements to reduce short-term and speculative trading activities; and, improve investor protection. In this context, the Commission services have asked the European Insurance and Occupational Pensions Authority (EIOPA) to examine whether the detailed calibration of capital requirements for investments in certain assets under the Solvency II regime (including infrastructure financing and project bonds; SME financing; debt securitisation etc.

For example, over the period 2000-2010, households reduced their equity holdings by eight percentage points as a proportion of financial assets. Despite the crisis, FDI flows into the EU made a recovery in 2011, after the steep decline of the most recent years. Possible follow-up to this Green Paper could take several forms: in some areas a regulatory approach may be needed, while in other areas stronger coordination and the promotion of best practices among Member States could be encouraged, for example in the context of the European semester. Another consequence of the crisis which may affect the ability of banks to channel long-term financing is the growing debate on whether additional reforms directly targeted at the their structure would further reduce the probability and impact of failure, better ensure the continuation of vital economic functions and better protect vulnerable retail clients. [32] The development of metrics and ratings that balance fostering a long-term perspective with short-term accountability could provide a useful tool to assist long-term investors. Other research argues that market-consistent valuation may encourage long-term investors to increase their risk exposure, if the volatility is recognised outside their profit and loss accounts. 17) What considerations should be taken into account for setting the right incentives at national level for long-term saving. 11) How could capital market financing of long-term investment be improved in Europe. There is scope to develop simple securitisation products based clear and unleveraged structures, using well-selected, diversified and low-risk underlying assets. In fact, the corporate sector has decreased borrowing over the last few years and has become a net provider of funds to the financial system. In particular, most of the MFF, including all EU Structural Instruments, will be eligible for use in financial instruments.

[10] Alternatively, on-going international work under the auspices of the G20 on long-term investment defines long-term finance more narrowly, focusing on maturities of financing in excess of five years, including sources of financing that have no specific maturity (e. The need for diversification and the search for yield given the low interest rate environment have been driving their expansion into long-term financing, allocating substantial shares of their portfolios into long-term instruments such as equity, private equity and other illiquid assets (e. There may be scope to consider initiatives designed to pool financial resources and to structure financing packages according to different phases of risk. The European Commission hosted a public hearing on the “Next steps to build a Capital Markets Union” in Brussels on Monday, 8 June 2015. Reforms that try to eliminate this distortion are, however, found in very few Member States. This may have lasting effects, creating more permanent barriers to the supply long-term financing, as well as affecting demand:. ), an important question is whether their cumulative impact on long-term macroeconomic capital formation could be greater than the simple sum of effects of each reform taken in isolation. While there are cases for using tax incentives, they can also create administrative burdens by increasing the number of exemptions or additional rules to be applied. Government policies and regulations need to be as neutral as possible with respect to private agents’ choices between equity and debt financing (for example, see below on corporate taxation). In particular, most of the MFF, including all EU Structural Instruments, will be eligible for use in financial instruments. The European economy – Frequently Asked Questions. Dedicated SME markets could help raise their visibility, attract new investors and support the development of new SME securitisation instruments. What does long term financing mean. Long-term financing also helps in the financing of exports and thus contributes to improving external competitiveness. Dialogue between investors and non-financial corporates, as well as through the dissemination of good practices and case studies could help here. For example, the European Commission has already committed to make proposals on long-term investment funds, which will help institutional investors with diversification and risk spreading.

 This definition focuses on the range of features associated with long-term finance. Response to the European Commission’s Green Paper Long-Term Financing. Proposals have also been presented to allow the operators of multilateral trading platforms to be registered also under the label of “SME growth market”; and, for a proportionate regime that will decrease administration costs and burdens for SME’s accessing markets for funding. Possible follow-up could take several forms: in some areas new or adapted regulation may be needed, while in others the role of the EU level could be in encouraging stronger coordination and the promotion of best practices, or in the form of specific follow-up with individual Member States in the context of the European semester.   R&D and environmental concerns). While governments will always play a key role in the provision of public goods and public infrastructure, greater spending efficiency through more systematic cost-benefit analysis and careful project screening has been a long-standing challenge. The asset management functions of non-bank institutional investors may also be unaccustomed to dealing with more illiquid assets, tasks which were previously often carried out by monoline insurers which guaranteed such assets. This highlights the equity gap in Europe, which is likely to take time to address. This is favourable compared to other regions. This paper focuses on a subset of green.

The structure and level of taxation can have an impact on investment and saving decisions and therefore on growth. 22) How can the mandates and incentives given to asset managers be developed to support long-term investment strategies and relationships. The small and medium-sized companies (SMEs) of today have the potential to underpin the long-term growth of the future. To what extent could European bond markets provide funds in the long run. The crisis highlighted the risks associated with making excessive use of leverage and maturity transformation. Some of these factors will take longer to address than others. The initiative seeks to demonstrate the feasibility of bond financing for infrastructure projects and ultimately aim to develop a liquid project bond market. ) should be adjusted to ensure there are no obstacles to long-term financing, albeit without creating additional prudential risks. How and by whom could a market be developed for SMEs, including for securitised products specifically designed for SMEs’ financing needs.

Restarting European Long-Term Investment Finance. One of the important questions is whether Europe’s historically heavy dependence on banks to finance long-term investment will and should give way to a more diversified system with significantly higher shares of direct capital market financing (i. The challenge consists in achieving the regulatory goals of greater macro-financial stability and global regulatory convergence in a way that minimises any negative incentives for financing productive long-term investment. Other ideas put forward from stakeholders in the context of the consultation would be analysed with interest by the Commission. Within the EU, there are substantial cross-country disparities. International regulatory bodies such as the Financial Stability Board and the G20 Group of Finance Ministers and Central Banks are already looking into this. Who are the savers and the investors when we talk about long term investment. However, this overall picture hides the fact that private investments in 2011 were well below their 2007 level and this drop was four times more than the drop in real GDP over the same period.

In practice only large corporates have an access to European bond markets, whereas most mid-caps and SMEs are barely able to tap the bond markets. One main lesson of the crisis is that appropriate regulation and supervision of the financial sector is necessary to restore financial stability and confidence in the markets. GREEN PAPER Building a Capital Markets Union /* COM/2015/063 final */. [6] The financial crisis has affected the ability of the financial sector in Europe to channel savings to long-term investment needs. These developments appear to have had a bigger impact on mid-caps.

The main thing about the green paper long term investment

Pension funds need to manage their risks in order to generate the required level of annual returns for their beneficiaries. Early indications from stakeholders suggest that a new LTIF vehicle could facilitate the raising of capital across the Union. International regulatory bodies such as the Financial Stability Board and the G20 Group of Finance Ministers and Central Banks are already looking into this. Further reflection is needed about how to ensure these markets grow on a sustainable basis and are properly supported within a regulatory framework. Could an EU model be designed. The financial crisis has impaired banks’ ability to lend at long maturities, as they need to deleverage, correcting the excesses of the past. What measures could be used to deal with the risks of arbitrage when exemptions/incentives are granted for specific activities. Similarly, Project Bonds could be extended to Green Bonds and dedicated industrial Demonstration Project Bonds, including for first-of-a-kind, commercial-scale industrial demonstration projects. However, the simultaneous introduction of liquidity requirements for different financial market players may discourage investments in less liquid assets and hence block several possible financing channels for long-term investment at the same time. However, the ability of institutional investors and markets to fill this gap depends on a number of conditions.

The financial crisis has affected the ability of the financial sector in Europe to channel savings to long-term investment needs. In particular, CIT systems in most Member States tend to favour debt over equity, creating incentives for higher leverage for firms, because interest payments are deductible, while there is generally no such relief for the return on capital. Question: 30) In addition to the analysis and potential measures set out in this Green Paper, what else could contribute to the long-term financing of the European economy. The focus is thus on productive (as opposed to financial) capital similar to the concept of the national accounts in which investment is specified as gross fixed capital formation. In addition, many Member States apply dual income tax systems, where capital income is generally taxed separately at a lower rate than other sources of income; and · Tax incentives: Tax incentives are often considered as instruments to encourage certain types of investment; a tax subsidy might be justified when the social return to an investment is higher than the private return of the investor and therefore investment levels are below the social optimum (e. The share of the banking sector in the EU is large by international comparison, especially compared to the US, reflecting Europe’s greater dependency on bank intermediation.

As part of a broader policy response, the detailed calibration of the new regulatory and supervisory framework must effectively enable and incentivise the financial sector to support the real economy, including in the area of taxation, without jeopardising financial stability. Getting the long-term financing process right is central to supporting structural economic reform and returning to the long-run trend of economic growth. There may therefore be scope to consider initiatives designed to pool financial resources[20] and to structure financing packages according to different phases of risk. Both public authorities and market participants share responsibility for creating this environment, re-embedding confidence and certainty, and enhancing Europe’s overall attractiveness as an investment destination. Given these effects, tax policies in this area have to be designed carefully. It was launched in response to the low level of investment that has been observed across Europe and the policies that have been adopted to deal with it. The Commission already has a SME securitisation instrument in place and has proposed to continue offering support for securitisation through the COSME programme. There is no single definition of long-term financing. Corporate governance arrangements The way in which assets are managed can play an important role in long-term financing in terms of aligning the incentives of asset managers, investors and companies on long-term strategies, mitigating concerns around short-termism, speculation and agency relationships. In addition, LTIF managers may bring additional expertise in how to look at the underlying transactions, or in how to select and manage long-term infrastructure projects. To fund long- term investment, governments, businesses and households need access to predictable long term financing. 23) Is there a need to revisit the definition of fiduciary duty in the context of long-term financing. Subject to appropriate oversight and data transparency, they can help financial institutions free capital, which can then be mobilised for additional lending, and manage risk. In this context, it would be useful to identify ways to balance the accuracy of the information given to investors with sufficient incentives to hold and manage very long-term assets. Banks, insurers and pension funds) and by direct access to capital markets.

In particular, CIT systems in most Member States tend to favour debt over equity, creating incentives for higher leverage for firms, because interest payments are deductible, while there is generally no such relief for the return on capital. Мобільна версія · News, Financial Services. Has prudential regulation had an impact on long term finance. Many investments in energy infrastructure, climate change, education etc. Generally, tax systems should be designed in such a way as to distort as little as possible the economic decisions of citizens and companies, unless the taxes intend to correct externalities arising from specific and well-defined market failures:. Rather, they should strive to catalyse private financing in areas where it is slow to come forward. Going forward, common European prudential rules for banks aim at preventing the excesses of the past, increasing the resilience of banks to risk and instilling confidence, and building a single rule book to protect the integrity of the Single Market. In the longer term, it may be worth considering whether the availability of specific vehicles at the EU level could help mobilise greater longer-term savings, more directly linked to wider societal objectives. What can corporate governance do to stimulate long-term finance. The system of financial intermediation for long-term investment in. In practice only large corporates have an access to European bond markets, whereas most mid-caps and SMEs are barely able to tap the bond markets. GREEN PAPER LONG-TERM FINANCING OF THE EUROPEAN ECONOMY /* COM/2013/0150 final */ 1. Question: 15) What are the merits of the various models for a specific savings account available within the EU level. Government policies and regulations need to be as neutral as possible with respect to private agents’ choices between equity and debt financing (for example, see below on corporate taxation).

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[10] Alternatively, on-going international work under the auspices of the G20 on long-term investment defines long-term finance more narrowly, focusing on maturities of financing in excess of five years, including sources of financing that have no specific maturity (e. The financial crisis has affected the ability of the financial sector in Europe to channel savings to long-term investment needs. In the review of the Transparency Directive,[31] the Commission has proposed lifting the obligation for quarterly reporting. GREEN PAPER LONG-TERM FINANCING OF THE EUROPEAN ECONOMY /* COM/2013/0150 final */ 1. Further steps could be considered, including:

    Venture capital: In addition to the new rules on European Venture Capital Funds and European Social Entrepreneurship Funds which create a special EU passport for all operators that invest in start-up SMEs and social businesses, funds-of-funds could be efficient instruments to increase the volume of venture capital;

    Dedicated markets for SMEs.

Question: 10) Are there any cumulative impacts of current and planned prudential reforms on the level and cyclicality of aggregate long-term investment and how significant are they. 8) What are the barriers to creating pooled investment vehicles. The challenge consists in achieving the regulatory goals of greater macro-financial stability and global regulatory convergence in a way that minimises any negative incentives for financing productive long-term investment. [19] The review aims inter alia to strengthen the protection of scheme members and facilitate cross-border activity in this field. In 2011 the Commission proposed an infrastructure package, composed of a new budgetary instrument, the Connecting Europe Facility, as well as revised guidelines for transport, energy and ICT and a Programme for the Competitiveness of Enterprises and SMEs (COSME). Research suggests that companies which pro-actively manage sustainability aspects of their operations consistently have a lower cost of capital and tend to outperform their competitors over the long term.

Green Paper on the long-term. Their impact can also begin to be felt in the short term. LOnG-TErM InVESTOrS AnD GrEEn InFrASTrUCTUrE. Banks will, of course, not disappear from the intermediation chain in Europe. Solvency II aims at introducing a harmonised economic risk-based regime and values assets at market-consistent economic value. · Developing or promoting other “non-traditional” sources of finance, such as leasing; supply chain finance; internet-based sources of funding like crowd-funding, etc. European securitisation markets are also under-developed compared to other parts of the world, further limiting the range of long-term financing instruments available.

12) How can capital markets help fill the equity gap in Europe. Encouraging greater long-term shareholder engagement via increased voting rights or dividends to long-term investors are some options that this Green Paper addresses in order to know the opinion of stakeholders. In this context, the Commission services have asked the European Insurance and Occupational Pensions Authority (EIOPA) to examine whether the detailed calibration of capital requirements for investments in certain assets under the Solvency II regime (including infrastructure financing and project bonds; SME financing; debt securitisation etc. It is important that state intervention in this context does not distort competition, crowd our private investors or destroy the level playing field in the Single Market. Government policies can support this through sound fiscal policies, efficient tax systems and a business-friendly environment that fosters the attractiveness of the economy for investment, including from abroad. [11] Even once this deleveraging process finishes, the re-pricing of risk following the crisis will raise the cost of capital.

Europe faces large-scale long-term investment needs, which are crucial to support sustainable growth

Pension funds) or to other alternatives. Question: 3) Given the evolving nature of the banking sector, going forward, what role do you see for banks in the channelling of financing to long-term investments. 25) Is there a need to develop specific long-term benchmarks. Who are the savers and the investors when we talk about long term investment. European securitisation markets are also under-developed compared to other parts of the world, further limiting the range of long-term financing instruments available. The financial crisis has affected the ability of the financial sector in Europe to channel savings to long-term investment needs.

The purpose of this Green Paper is to initiate a broad debate about how to foster the supply of long-term financing and how to improve and diversify the system of financial intermediation for long-term investment in Europe

Ensuring our economy and our financial sector – including banks and institutional investors such as insurers and pension funds – are capable of funding long-term investments is an important but complex task. [32] The development of metrics and ratings that balance fostering a long-term perspective with short-term accountability could provide a useful tool to assist long-term investors. These developments appear to have had a bigger impact on mid-caps. In particular, how should tax incentives be used to encourage long-term saving in a balanced way. The intermediation process, by which the supply of funding is channelled towards investment, is also under pressure, especially with commercial banks – the traditional financial intermediaries in Europe (over 75% of total intermediation) – deleveraging and widespread criticism that incentives in the financial system are misaligned, biased towards short-termism and speculation. The Commission, Council and Parliament have also discussed measures to facilitate the provision of insurance products with long-term guarantees and long-term investments under Solvency II.

  R&D and environmental concerns). 9) What other options and instruments could be considered to enhance the capacity of banks and institutional investors to channel long-term finance. Building on this, action to enhance the long-term financing of the European economy should address a broad range of interconnected factors: · The capacity of financial institutions to channel long-term finance; · The efficiency and effectiveness of financial markets to offer long-term financing instruments; · Cross-cutting factors enabling long-term saving and financing; and · The ease of SMEs to access bank and non-bank financing. It does not follow per se that rules that limit the ability of banks to use short-term funding in this way translate into reduced lending for the real economy. Building on this, action to enhance the long-term financing of the European economy should address a broad range of interconnected factors:. Restarting European Long-Term Investment. Valuation measurements, accounting principles and the strategies deployed by asset managers are also cited by many commentators as factors that complicate the intermediation chain, increase the costs of intermediation and create misaligned incentives, such as those arising from the bias towards speculation and short-termism, which are also due to perceived higher risks and delayed returns linked to long-term investment.

Financial stability is essential, but alone is insufficient. Research suggests that companies which pro-actively manage sustainability aspects of their operations consistently have a lower cost of capital and tend to outperform their competitors over the long term. [21]             For example, a finance roundtable has been established to identify opportunities to develop adapted finance and innovative financial instruments for supporting resource-efficiency actions [22]             See http://ec. The Commission has proposed reforms to improve market structure through the creation of new trading venues; to enhance transparency and information efficiency; to improve requirements to reduce short-term and speculative trading activities; and to increase investor protection1. For example, the average exposure to infrastructure assets of institutional investors remains low compared to their allocation to real estate and to actual infrastructure investment needs. Мобільна версія · Long-term financing.

This Green Paper is concerned with long-term investment

Subdued demand and market uncertainties have affected corporate earnings. From a long-term financing perspective, prudential regulation must address the risks faced by banks when using short-term deposits to fund long-term lending. LOnG-TErM InVESTOrS AnD GrEEn InFrASTrUCTUrE. 8tn of assets, equating to more than 100% of EU GDP. Can SMEs easily access long term finance. [8] However, many SMEs also suffer from a continual lack of liquidity;.

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