There is widespread political and industry consensus that stronger, deeper and more integrated European capital markets are needed to address the many diverse and significant funding challenges that Europe faces. The International Securities Lending Association (ISLA) is delighted to share its views and recommendations on how its members and the market it represents, can support European Union (EU) policy makers and regulators in achieving this objective. As an organisation, representing the majority of securities lending and borrowing activity in Europe, and with over 40% of our membership based in the EU, we are committed to ensuring our sector contributes to a successful and vibrant European economy.
Despite the extensive legislative initiatives of the last ten years, European capital markets remain under- developed, heavily reliant on bank funding, and are losing market share globally.
Meanwhile, Europe’s funding needs have grown exponentially vis-à-vis not only the green and digital transitions, but also the financial needs of an ageing EU population and, more recently, the need for Europe to increase its defence capabilities – at a time of limited fiscal capacity.
Building more liquid EU capital markets is crucial to support the flow of private investments needed to address these funding challenges. This requires unlocking the substantial liquidity available among institutional investors. Securities lending and borrowing (SLB) is one of the core channels that can deliver exactly that, as one of the most efficient mechanisms to facilitate the flow of securities between supply and demand.
What this calls for is greater political focus and a European strategy to prioritise safeguarding and empowering core funding market channels such as SLB, to ensure securities can be mobilised quickly, and in sufficient quality and quantity. There is however significant untapped potential of securities supply held in portfolios of EU-based lenders such as UCITS, pension funds and insurance companies. If fully mobilised, it can be a key tool to unlock capital, enhance market liquidity and support investment across the EU – the foundations for competitive capital markets.
The full paper is available at https://www.islaemea.org/wp-content/uploads/2024/05/ISLA_Boosting_EU_Capital_Markets_May24.pdf