In recent months, bank failures in the United States and Switzerland have affected financial markets worldwide, and the euro area financial system recently passed a real-life stress test. At the same time, the events of this spring underlined the importance of making decisive progress on the European banking union and capital markets union projects, said Luis de Guindos, vice president of the ECB in a recent speech.
“The financial market turbulence and contagion from the United States and Switzerland would have been far more muted had we been closer to our goals. Completing the banking and capital markets union projects will increase cross-border bank lending and enhance the dynamism of public and private equity markets. Both are key to enhancing integration and stability in the euro area financial system, and they will also ensure that the funding for the green and digital transitions is available to meet the challenges ahead,” he said.
He added that equity financing – especially venture and growth capital – plays a central role in funding innovative firms. Given equity investors’ greater risk appetite, a larger share of equity financing may be needed to drive green innovation. ECB research suggests that an economy’s carbon footprint shrinks faster when a higher proportion of its funding comes from equity rather than debt financing.
“The capital markets union and the banking union are intrinsically linked. More integrated capital markets support cross-border banking activities, while more cross-border holdings would allow banks to diversify, making them more resilient. From issuance to underwriting, banks provide essential services for capital markets. Therefore, a more resilient and integrated banking system also supports the smooth functioning and further integration of capital markets,” said De Guindos.