IMF Staff Country Reports

The European Union (EU) recently sought to give fresh impetus to longstanding efforts to grow and deepen its capital markets—the Capital Markets Union (CMU). Building on the earlier Financial Services Action Plan and work to remove barriers to consolidation and efficiency in post-trade arrangements, the European Commission has set out various legislative and non-legislative initiatives to enable easier access to capital, enhance the efficiency and scalability of EU capital markets, and by doing so reduce the extent of the dependence on bank financing. Fragmentation of capital markets in the euro area (EA) is driven by many factors including national differences in securities, corporate, tax and pensions laws, policies. These can create significant uncertainty, e.g., determining which law is applicable and how cross-border financial investments will be treated in insolvency, and barriers to cross-border provision of investments products. For the CMU to be successful these barriers will need to be reduced over time. However, the focus of this note is on proposals pertaining to the institutional arrangements and supervisory framework, including how to enable a safe transition towards centralizing supervision of at least some types of entity at the EA level.