Capital Markets for Growth

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“We are not in a business as usual scenario, but one in which market panic could jeopardise the managed unwinding of the unsustainable policies of the past.” This was the cautionary note sounded by Commissioner Olli Rehn in his keynote address to the 400 participants at the ECMI Annual Conference on October 18 in Brussels. Rehn’s views were challenged by Paul de Grauwe (LSE and CEPS), who argued for asymmetric macro-economic policies, with creditor countries running moderate deficits to avoid a deflationary spiral.

In a session on bank deleveraging and capital markets, Manmohan Singh (IMF) illustrated the risks of reducing collateral use (velocity) on the backbone of the financial system. Despite bank balance sheets remaining relatively stable under central bank intervention, the financial system is still shrinking under lower collateral velocity – which could, however, reduce interconnectedness and benefit financial stability; the issue thus is one of balance.

In a session on reforming the structure of capital markets, Rodrigo Buenaventura of the European Securities and Markets Authority (ESMA) presented the key aspects of European Market Infrastructure Regulation (EMIR) and its implications for the business of central counterparties and trade repositories.

The last session was dedicated to investor protection, where Carlos Tavares (Portuguese Markets Authority and ESMA) put numbers to the growth of complex retail investment products, for which no harmonised protection exists.