A post-crisis framework for European capital markets

The effects triggered by the spread of COVID-19 and its economic impact will be severe and long-lasting. Today, we face economic upheaval potentially graver than the Great Financial Crisis. Pressure on the financial system is growing and, clearly, this is a “whatever-it-takes” moment for fiscal and monetary policy.

During this crisis, policymakers have reacted swiftly to inject liquidity into the economy, but ultimately, when solvency is in question, the transformational capacity of banks can be impaired. Equity is needed to buffer exogenous shocks and will be needed more than ever so that public equity markets can, to the best of their abilities, help companies weather the crisis and finance their post-crisis growth.

Policymakers must assess what needs to be done to support the economy in its recovery. In this paper, FESE outlines its proposal for a post-crisis framework around two areas: first, we underline the need to develop market-based financing in an environment in which the EU must reduce its dependence on bank lending and promote primary markets.  Second, we are convinced that securing the right market structure is key to avoid liquidity crises turning into solvency crises.

The post-crisis world will be built upon the choices we make now. Capital markets have a pivotal role to play in this new normal, financing a sustainable economy and confronting the threat posed by climate change, and need to be supported.