GREEN PAPER LONG-TERM FINANCING OF THE EUROPEAN ECONOMY
Date: 2013-03-25
Institutions: European Commission
Subjects: economic growth, economic reform, financial institution, financial legislation, financial market, long-term financing, market supervision, sustainable development, trans-European network

EUROPEAN 
COMMISSION 

Brussels, 25.3.2013  
COM(2013) 150 final 

GREEN PAPER 

LONG-TERM FINANCING OF THE EUROPEAN ECONOMY 

(Text with EEA relevance) 

{SWD(2013) 76 final} 

EN 

   EN 

 
 
 
 
  
 
1. 

INTRODUCTION  

Europe’s  pressing  challenge  is  to  put  the  EU  back  on  the  path  of  smart,  sustainable  and 
inclusive growth, creating jobs, building on its areas of competitive advantage and, thereby, 
enhancing its competitiveness in the global market place.  

In responding to this task, Europe faces large-scale, long-term investment needs, in line with 
the priorities of the Europe 2020 strategy,1 the 2012 industrial policy update2, the Innovation 
Union initiative3 and the Connecting Europe Facility.4 Long-term investment is the formation 
of long-lived capital, covering tangible assets (such as energy, transport and communication 
infrastructures,  industrial  and  service  facilities,  housing  and  climate  change  and  eco-
innovation  technologies)  and  intangible  assets  (such  as  education  and  research  and 
development)  that  boost  innovation  and  competitiveness.  Many  of  these  investments  have 
wider public benefits, since they generate greater returns for society as a whole by supporting 
essential services and improving living standards. Their impact can also begin to be felt in the 
short term. They enable companies and governments to produce more with fewer resources, 
responding to new economic, social5 and environmental challenges, facilitating the transition 
to  a  more  sustainable  economy  and  raising  the  productive  and  industrial  capacity  of  the 
economy.  Trends  in  climate  change  and  the  depletion  of  natural  resources  further  underline 
the  sustainable  growth  challenge,  as  they  call  for  more  long-term  investment  in  low-carbon 
energy,  energy  and  resource  efficiency  and  infrastructure,  consistent  with  the  political 
objective  of  limiting  climate  change  below  two  degrees  and  decoupling  economic  growth 
from resource use. 

To fund these long-term investments, governments and businesses of all sizes need access to 
predictable,  long-term  financing.  The  capacity  of  the  economy  to  make  such  long-term 
financing  available  depends  on  the  ability  of  the  financial  system  to  channel  the  savings  of 
governments, corporates and households effectively and efficiently to the right users and uses 
through open and competitive markets. This can be carried out by various intermediaries (e.g. 
banks, insurers and pension funds) and by direct access to capital markets. This Green Paper 
focuses on how this process operates. As a prerequisite to channelling long-term financing at 
reasonable cost, the economy needs to generate and attract savings. Government policies can 
support  this  through  sound  fiscal  policies,  efficient  tax  systems  and  a  business-friendly 
environment  that  fosters  the  attractiveness  of  the  economy  for  investment,  including  from 
abroad.  

Getting  the  long-term  financing  process  right  is  central  to  supporting  structural  economic 
reform and returning to the long-run trend of economic growth. Long-term financing is also 
needed throughout the whole lifecycle of a company, helping to start a business, allowing it to 
grow  and  then  sustaining  its  growth.  Long-term  financing  supports  the  transition  of 
companies  as  they  progress  through  this  lifecycle.  This  requires  the  knowledge  and 
availability of different financial instruments and processes. Long-term financing also helps in 
the  financing  of  exports  and  thus  contributes  to  improving  external  competitiveness.  The 

1  
2  
3  
4  
5  

See http://ec.europa.eu/europe2020/index_en.htm 
See http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=COM:2012:0582:FIN:EN:PDF 
See http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=COM:2010:0546:FIN:EN:PDF 
See http://ec.europa.eu/bepa/pdf/cef_brochure.pdf 
The  Commission  Communication  “Towards  Social 
investment  for  Growth  and  Cohesion” 
(COM(2013)83) underlines the need for Member States to make more use of innovative approaches to 
financing in the social area, including by using participation of the private sector. 

2 

 
 
 
                                                            
importance  of  long-term  financing  for  growth  and  job  creation  has  been  recognized  at 
international level by the G20.6 

The financial crisis has affected the ability of the financial sector in Europe to channel savings 
to  long-term  investment  needs.  Above  all,  the  financial  crisis  and  the  current  weak 
macroeconomic situation have created a climate of uncertainty and risk aversion, particularly 
in  those  Member  States  under  financial  pressure  and  for  SMEs.  The  financial  crisis  has 
impaired banks' ability to lend at long maturities, as they need to deleverage, correcting the 
excesses of the past. At the same time, the crisis has had a negative impact on the confidence 
and risk appetite of borrowers and institutional investors.   

One  main  lesson  of  the  crisis  is  that  appropriate  regulation  and  supervision  of  the  financial 
sector  is  necessary  to  restore  financial  stability  and  confidence  in  the  markets.  As  part  of  a 
broader  policy  response,  it  is  appropriate  to  ensure  that  the  detailed  calibration  of  the  new 
regulatory and supervisory framework most effectively enables the financial sector to support 
the real economy, without jeopardising financial stability.  

Looking  beyond  the  financial  crisis,  an  important  question  is  whether  Europe's  historically 
heavy dependence on bank intermediation in financing long-term investment will give way to 
a more diversified system with significantly higher shares of direct capital market financing 
and greater involvement of institutional investors and alternative financial markets. There is 
no  doubt  that,  given  their  risk  management  skills  and  local  knowledge  of  and  relationships 
with  enterprises,  banks  will  continue  to  be  important  players  in  channelling  long-term 
investment. However, it is uncertain whether commercial banks will resume their practice of 
holding long-term assets to maturity at previous levels. 

The diminished role of banks in long-term lending opens up new needs and opportunities for 
other financial institutions and market-based intermediation to channel financing to long-term 
investments.  However,  the  ability  of  institutional  investors  and  markets  to  fill  this  gap 
depends  on  a  number  of  conditions.  Alongside  the  right  calibration  of  the  prudential 
regulatory  framework,  many  claim  that  accounting  principles,  valuation  measurements  and 
the  behaviour  of  asset  managers  create  extra  costs  and  misaligned  incentives.  In  addition, 
corporate bond, equity and securitisation markets in Europe remain relatively underdeveloped 
compared to other economies, and non-bank financing remains largely inaccessible to SMEs. 

Ensuring effective and efficient intermediation channels for long-term financing is a complex 
and  multi-dimensional  task.  The  purpose  of  this  Green  Paper  is  to  initiate  a  broad  debate 
about how to foster the supply of long-term financing and how to improve and diversify the 
system of financial intermediation for long-term investment in Europe. As can be seen from 
the  consultation  questions,  this  debate  should  take  into  account  the  specificities  of  different 
financial  market  actors  and  also  address  questions  related  to  a  diverse  set  of  enabling 
conditions.  Responses  to  consultation  questions  will  contribute  to  further  assessment  by  the 
Commission of the barriers to long-term financing, with a view to identifying possible policy 
actions to overcome them. Possible follow-up could take several forms: in some areas new or 
adapted  regulation  may  be  needed, while in  others  the  role  of  the  EU  level  could  be  in 
encouraging  stronger  coordination  and  the  promotion  of  best  practices,  or  in  the  form  of 
specific  follow-up  with  individual  Member  States  in  the  context  of  the  European  semester. 
This  Green  Paper  is  accompanied  by  a  Commission  Staff  Working  Paper,  setting  out  the 
underpinning analysis in more detail.    

6  

See http://www.g20.org/news/20130216/781212902.html 

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2. 

THE  SUPPLY  OF  LONG-TERM  FINANCING  AND  CHARACTERISTICS  OF  LONG-TERM 
INVESTMENT  

The capacity of the economy to provide the financing for long-term investment depends on its 
ability to generate savings and attract and retain foreign direct investments (FDI).  

Various  providers  can  act  as  the  sources  of  long-term  financing,  including  governments, 
corporates  and  households.  Governments  and  corporates  also  create  demand  for  long-term 
financing. In Europe, the ratios of investment or savings to GDP are both around 20%. This is 
favourable compared to other regions. However, this overall picture hides the fact that private 
investments in 2011 were well below their 2007 level and this drop was four times more than 
the  drop  in  real  GDP  over  the  same  period.7  Both  savers  and  investors  are  currently 
experiencing high degrees of uncertainty, risk aversion and lack of confidence as a result of 
the weak macroeconomic situation and outlook. This may have lasting effects, creating more 
permanent barriers to the supply long-term financing, as well as affecting demand: 

• 

• 

• 

• 

Governments: public resources, coming from taxation and public debt, play a 
key  role  in  financing  long-term  investments  given  the  positive  externalities 
often  associated  with  government  investment  and  its  complementarities  with 
private  investment.  While  governments  will  always  play  a  key  role  in  the 
provision of public goods and public infrastructure, greater spending efficiency 
through more systematic cost-benefit analysis and careful project screening has 
been  a  long-standing  challenge.  In  addition,  public  resources  in  the  form  of 
grants or loans are used to support private-sector long-term investment in areas 
where  market  failures  lead  to  sub-optimal  levels  of  private  funding  and/or 
investment.  In  these  areas,  public  resources  should  not  replace  private 
financing, but can catalyse it and help manage the associated risks.;  

Corporates: Corporates finance investment either from their own resources or 
by  accessing  the  financial  system.  Subdued  demand  and  market  uncertainties 
have  affected  corporate  earnings.  At  the  same  time,  corporate  investment  has 
been  even  weaker,  resulting  in  an  increase,  in  some  Member  States,  in  the 
stock of internal savings, especially of large corporates – cash and equivalent 
positions  of  large  firms  are  estimated  to  have  increased  by  around  four 
percentage points from 2009 to 2011.8 However, many SMEs also suffer from 
a continual lack of liquidity; 

Households: Households are  the main source of funds to finance investment. 
However, short-term savings are their most preferred instrument. For example, 
over the period 2000-2010, households reduced their equity holdings by eight 
percentage  points  as  a  proportion  of  financial  assets.9  Households  generally 
prefer liquidity and easy redemption. Stability is preferred and risk-aversion is 
now widespread. There is therefore a need to mobilise more long-term savings; 
and   

External  financing:  FDI  remains  another  traditionally-important  source  of 
financing long-term projects. Despite the crisis, FDI flows into the EU made a 
recovery in 2011, after the steep decline of the most recent years. EU inward 

7  
8  

9  

See McKinsey Global Institute (2012). 
Based  on  a  survey  of  changes  in  cash  and  cash  equivalents  of  170  large  European  non-financial 
corporates rated by Fitch. 
See McKinsey Global Institute (2011). 

4 

 
 
                                                            
FDI flows reached €242 billion in 2011, thus growing by 13% relative to 2010 
levels. Within the EU, there are substantial cross-country disparities. 

The  long-term  growth  prospects  of  any  economy  depend  inter  alia  on  the  financial  sector's 
ability to channel the above-mentioned sources of savings into productive investment. This 
Green  Paper  is  concerned  with  long-term  investment  in  the  sense  of  the  formation  of  long-
lived tangible and intangible capital. The focus is thus on productive (as opposed to financial) 
capital  similar  to  the  concept  of  the  national  accounts  in  which  investment  is  specified  as 
gross fixed capital formation. The formation of productive capital was deeply hit during the 
financial  crisis,  and  investment  levels  are  still  below  their  pre-crisis  levels  in  many  EU 
countries. Investment in tangible and intangible productive capital is essential in order to turn 
the EU economy around and will be a corner stone of any long-term growth strategy.  

The  focus  is  put  on  long-lived  capital  goods  (such  as  economic  and  social  infrastructure, 
buildings  and  R&D,  education  and  innovation),  not  because  they  are  more  important  for 
growth  than  shorter-lived  capital  goods  (such  as  computers,  mobile  phones  and  vehicles). 
Rather,  investment  volumes  for  short-lived  capital  goods  are  strongly  pro-cyclical.  These 
volumes are currently down because of the weak macroeconomic outlook in Europe, but they 
are expected to recover as soon as the economy picks up. The same is true for other expenses 
of productive firms such as staff costs (hiring) and purchases of intermediate inputs. 

The  situation  is  very  different  for  long-term  capital  goods,  which  are  characterised  by  long 
investment/construction  periods  and  require  long-term  financing  given  that  the  cash  flows 
generating  the  return  on  investment  only  start  after  a  considerable  period  of  time.  Since  a 
significant share of the stock of long-term productive capital consists of public infrastructure, 
this type of capital has traditionally played a stabilising role for the economy – this depends 
on governments being able to provide public investment in an anti-cyclical manner; and the 
financial  sector,  when  providing  funds  for  investment,  being  reasonably  confident  that  the 
economy will be in full swing once construction periods are completed.   

There  is  no  single,  universally-accepted  definition  of  long-term  financing.  In  broad  terms, 
long-term financing can be considered as the process by which the financial system provides 
the funding to pay for investments that stretch over an extended time period.  This definition 
focuses on the range of features associated with long-term finance.10 Alternatively, on-going 
international work under the auspices of the G20 on long-term investment defines long-term 
finance more narrowly, focusing on maturities of financing in excess of five years, including 
sources of financing that have no specific maturity (e.g. equities).  

Questions: 

1) Do you agree with the analysis out above regarding the supply and characteristics of long-
term financing? 

2) Do you have a view on the most appropriate definition of long-term financing? 

3. 

ENHANCING THE LONG-TERM FINANCING OF THE EUROPEAN ECONOMY 

As  for  all  types  of  financing,  the  capacity  of  the  economy  to  finance  long-term  investment 
depends  on  the  ability  of  the  financial  system  to  effectively  and  efficiently  channel  these 

10  

These features include the characteristics of the investor, the nature of the asset, the type of financial 
intermediation,  and  the  valuation  and  pricing  of  the  asset.  For  further  details,  see  the  Staff  Working 
Paper accompanying this Green Paper. 

5 

 
 
                                                            
funds to the right users and investments through open and competitive markets. This process 
can be carried out by various intermediaries – including banks, insurers and pension funds –
and  by  direct  access  to  financial  markets.  However,  a  range  of  factors  restrains  them  from 
playing  a  fully  effective  long-term  financing  role.  Some  of  these  factors  will  take  longer  to 
address than others.  

One  main  lesson  of  the  crisis  is  that  appropriate  regulation  and  supervision  of  the  financial 
sector  is  necessary  to  restore  financial  stability  and  confidence  in  the  markets.  The  EU  has 
been  pursuing  a  comprehensive  programme  of  financial  reform 
this  context, 
complementing broader fiscal and economic reform. Financial stability is essential, but alone 
is  insufficient.  As  part  of  a  broader  policy  response,  the  detailed  calibration  of  the  new 
regulatory  and  supervisory  framework  must  effectively  enable  and  incentivise  the  financial 
sector  to  support  the  real  economy,  including  in  the  area  of  taxation,  without  jeopardising 
financial stability. 

in 

Both  public  authorities  and  market  participants  share  responsibility  for  creating  this 
environment,  re-embedding  confidence  and  certainty,  and  enhancing  Europe’s  overall 
attractiveness  as  an  investment  destination.  Building  on  this,  action  to  enhance  the  long-
term  financing  of  the  European  economy  should  address  a  broad  range  of 
interconnected factors:  

• 

• 

• 

• 

The capacity of financial institutions to channel long-term finance; 

The  efficiency  and  effectiveness  of  financial  markets  to  offer  long-term 
financing instruments; 

Cross-cutting factors enabling long-term saving and financing; and 

The ease of SMEs to access bank and non-bank financing. 

3.1. 

The capacity of financial institutions to channel long-term finance 

Commercial banks  

Banks  have  traditionally  been  the  most  important  financial  intermediaries  in  Europe.  The 
share  of  the  banking  sector  in  the  EU  is  large  by  international  comparison,  especially 
compared  to  the  US,  reflecting  Europe's  greater  dependency  on  bank  intermediation.  Going 
forward, this creates challenges for long-term financing. 

The crisis highlighted the risks associated with making excessive use of leverage and maturity 
transformation. Along with weakening demand in some countries in recession, this has led to 
deleveraging  by  many  banks,  contributing  in  particular  to  the  current  scarcity  of  long-term 
financing.11 Even once this deleveraging process finishes, the re-pricing of risk following the 
crisis  will  raise  the  cost  of  capital.  The  costs  associated  with  bank  crisis  management  tools 
may  also  raise  the  cost  of  capital,  although  the  positive  effects  of  establishing  a  more 
resolvable  banking  sector  will  be  extremely  beneficial  for  society  and  the  economy.  The 
interconnections between banks and sovereigns and tighter regulation have also amplified the 
concentration  of  bank  activities  in  home  markets,  leading  to  reductions  in  cross-border 
financing  and  fragmentation  of  the  Single  Market,  which  further  reduces  the  availability  of 
funding and drives up the cost of capital, in particular in countries currently under stress.  

11  

For example, the ECB bank lending survey October 2012 reports that net tightening of credit standards 
by euro area banks for loans or credit lines to enterprises increased 15% in net terms, compared to 10% 
in  the  second  quarter  of  2012.  Equally,  the  volume  of  new  long-term  loans  declined  markedly  in  the 
first half of 2012 and their stock shows a significant downward trend at the very short end. 

6 

 
 
                                                            
Going  forward,  common  European  prudential  rules  for  banks  aim  at  preventing  the 
excesses of the past, increasing the resilience of banks to risk and instilling confidence, and 
building  a  single  rule  book  to  protect  the  integrity  of  the  Single  Market.  From  a  long-term 
financing perspective, prudential regulation must address the risks faced by banks when using 
short-term deposits to fund long-term lending. It does not follow per se that rules that limit the 
ability  of  banks  to  use  short-term  funding  in  this  way  translate  into  reduced  lending  for  the 
real economy. However, the potential trade-off between restricting liquidity creation to ensure 
stability  and  providing  long-term  financing  for  the  real  economy  explains  the  need  for 
appropriate  calibration  and  progressive  implementation  of  the  rules.  Recent  proposals  from 
the  Basel  Committee  for  liquidity  requirements  aim  at  increasing  banks'  resilience,  while 
ensuring  that  restrictions  on  maturity  transformation  do  not  have  unintended  consequences. 
The Commission has proposed a monitoring period, as well as a review of the calibration of 
the parameters for liquidity requirements.12  

Another consequence of the crisis which may affect the ability of banks to channel long-term 
financing  is  the  growing  debate  on  whether  additional  reforms  directly  targeted  at  the  their 
structure  would  further  reduce  the  probability  and  impact  of  failure,  better  ensure  the 
continuation  of  vital  economic  functions  and  better  protect  vulnerable  retail  clients.  The 
recent report of the High-level Expert Group on reforming the structure of the EU banking 
sector documents how bank behaviour in recent decades has led to a disproportional increase 
in  intra-financial  business,  rather  than  customer-facing  activities,  including  long-term 
financing for companies. The Group recommended restricting and separating out risky trading 
practices. The Commission is currently reflecting on how to follow up on the Group’s report. 

Banks will, of course, not disappear from the intermediation chain in Europe. Their credit risk 
assessment  skills  and  local  knowledge  of  and  relationships  with  enterprises  mean  they  will 
continue  to  and  need  to  be  important  players.  But  against  the  background  of  developments 
since  the  crisis  in  the  banking  sector,  there  are  new  needs  and  opportunities  for  other 
intermediaries  to  complement  the  role  of  banks  by  channelling  financing  to  long-term 
investments in a more balanced way.  

Question: 

3) Given the evolving nature of the banking sector, going forward, what role do you see for 
banks in the channelling of financing to long-term investments? 

National and multilateral development banks and financial incentives 

Development banks active both internationally and nationally should play a role in helping to 
catalyse long-term financing and enhance the efficiency and effectiveness of financial markets 
and  instruments.  Despite  the  positive  net  contributions  of  certain  investments  to  economic 
welfare, market failures can prevent investors from taking certain risks and/or making certain 
investment decisions. In these instances, national and multilateral development banks can be 
useful in stimulating private financing given their specific public policy objectives related to 
broader  economic,  social  and  environmental  (as  opposed  to  purely  financial)  value  added. 
Provided  they  focus  on  proven  market  failures,  their  involvement  can  fulfil  an  important 
countercyclical  role,  including  by  reducing  the  volatility  of  funding  costs  for  certain 
categories  of  investors  and  mitigating  the  short-termism  of  private  actors.  Importantly,  the 
governance  of  development  banks  should  ensure  that  they  do  not  use  their  funding-cost 
advantage  to  crowd  out  private  financing.  Rather,  they  should  strive  to  catalyse  private 
financing in areas where it is slow to come forward.  

12 

See http://ec.europa.eu/internal_market/bank/regcapital/new_proposals_en.htm.  

7 

 
 
                                                            
Public intervention can be achieved, either directly or indirectly, by offering or contributing to 
a  range  of  financing  products,  including  sharing  and/or  guaranteeing  risks,13  and  bringing 
together  financial  intermediaries  in  appropriate  networks.14  Under  the  current  EU  budget  a 
number  of  the  EU-level  financial  instruments,15  several  run  jointly  by  the  Commission,  the 
European  Investment  Bank  (EIB)  and  the  European  Investment  Fund  (EIF),  as  well  as  in 
partnership  with  Member  States,  aim  at  addressing  specific  market  gaps  and  facilitating 
access  to  finance,  including  longer-term  finance.16  Going  forward,  the  EU  multiannual 
financial framework (MFF) will make increasing use of financial instruments, which can play 
an  important  role  in  increasing  the  impact  of  EU  spending,  by  further  leveraging  and 
catalysing  private  long-term  financing.  In  particular,  most  of  the  MFF,  including  all  EU 
Structural  Instruments,  will  be  eligible  for  use  in  financial  instruments.  Their  effectiveness 
will  depend  on  close  networking  and  cooperation  between  the  Commission,  the  EIB  Group 
and Member States. 

It  is  also  important  that  public  intervention  does  not  contribute  to  the  fragmentation  of  the 
Single  Market.  Coordination,  assessment  and  accountability  between  national  and  EU-level 
action  can  help  prevent  this,  enhancing  the  value  added  of  a  European  approach.  Closer 
cooperation  between  national  and  multilateral  development  banks,  under  the  aegis  of 
Commission and EIB, could provide a vehicle for such coordination, including by supporting 
the  creation  of  European  economic  interest  groupings  for  the  financing  of  cross-border 
projects. The impact of  foreign sovereign funds, and the opportunity  to strengthen or create 
European ones, could also be considered. 

Questions: 

4)  How  could  the  role  of  national  and  multilateral  development  banks  best  support  the 
financing  of  long-term  investment?  Is  there  scope  for  greater  coordination  between  these 
banks  in  the  pursuit  of  EU  policy  goals?  How  could  financial  instruments  under  the  EU 
budget better support the financing of long-term investment in sustainable growth? 

5) Are there other public policy tools and frameworks that can support the financing of long-
term investment?   

13  

14 
15  

16 

For example, ‘bridging products’ are instruments that can ease investors’ or financial institutions' risk 
aversion. They can include first-loss credit or mezzanine credit enhancement; vehicles specializing in 
early-stage and large-scale demonstration projects with public sector financing alongside private sector 
For example, through the Long-Term Investors Club. See http://www.ltic.org/. 
Equity or risk-capital, guarantees or other risk-sharing instruments supported by the central EU budget 
or the Structural Funds budget. For further details see the Commission Communication “A framework 
for  the  next  generation  of  innovative  financial  instruments  -  the  EU  equity  and  debt  platforms” 
(COM(2011)662). 
For  example,  the  Project  Bond  Initiative  and  instruments  using  resources  from  Structural  and 
Investment  Funds  providing  debt,  mezzanine  and  equity  financing  to  SMEs,  municipalities  and 
infrastructure projects. In 2011 the Commission proposed an infrastructure package, composed of a new 
budgetary  instrument,  the  Connecting  Europe  Facility,  as  well  as  revised  guidelines  for  transport, 
energy  and  ICT  and  a  Programme  for  the  Competitiveness  of  Enterprises  and  SMEs  (COSME).  The 
Commission and the EIB have developed two risk-sharing finance facilities, including the Risk-Sharing 
Finance  Facility  (RSFF)  for  research  intensive  and  innovative  companies  and  the  Loan  Guarantee 
Instrument for TEN-Transport (LGTT) for transport projects.  Under the Structural Funds for the period 
2007-2013, at least €10.7bn of EU money has been invested so far in financial engineering instruments, 
mainly by the ERDF for SME access to finance. This money will be re invested in the long term for the 
benefit of the European economy. 

8 

 
 
                                                            
Institutional investors 

Given the longer time horizons of their business models, institutional investors – such as (life) 
insurance  companies,  pension  funds,  mutual  funds  and  endowments  –  represent  suitable 
providers of long-term financing. Together, they hold an estimated total of €13.8tn of assets, 
equating to more than 100% of EU GDP.17 Other institutional investors – such as sovereign 
wealth  funds,  dedicated  infrastructure  funds  and,  to  some  extent,  private  equity  –  have  also 
emerged  as  providers  of  long-term  capital.  Venture  capital  can  also  provide  long-term 
finance. 

The  long  duration  of  their  liabilities  allows  institutional  investors,  at  least  in  principle,  to 
make  buy-and-hold  investments  in  long-dated  productive  assets,  achieving  higher  yields  to 
offset longer-term risks and lower liquidity inherent in many of these assets. Their longer time 
horizons  enable  institutional  investors  to  behave  in  a  patient,  counter-cyclical  manner, 
restraining “short-termism” and reducing the need for maturity transformation. The need for 
diversification  and  the  search  for  yield  given  the  low  interest  rate  environment  have  been 
driving  their  expansion  into  long-term  financing,  allocating  substantial  shares  of  their 
portfolios  into  long-term  instruments  such  as  equity,  private  equity  and  other  illiquid  assets 
(e.g.  some  pension  funds  have  invested  directly  in  large-scale  renewable  energy  projects  in 
recent years).  

Against this background, as for banks, institutional investors are obliged to meet a variety of 
prudential regulations and to comply with accounting standards. The new prudential rules for 
insurance undertakings (the Solvency II Directive)18 require them to hold assets to cover the 
nature  and  duration  of  their  liabilities;  holding  long-term  investments  is  aligned  with  the 
social  functions  of  these  undertakings.  Solvency  II  aims  at  introducing  a  harmonised 
economic  risk-based  regime  and  values  assets  at  market-consistent  economic  value.  The 
impact of new prudential rules on insurers’ long-term financing ability will depend in part on 
their  individual  starting  point  and  on  the  exact  fine-tuning  of  how  longer-term  assets  are 
treated. Discussion has focused on how to ensure that regulatory asset risk capital charges do 
not  weigh  overly  on  the  holding  of  long-term  assets;  and,  that  there  is  no  reduction  in  the 
positive incentives of the Solvency II framework on rewarding long-term liabilities duration-
matching through long-term investments.  

In  this  context,  the  Commission  services  have  asked  the  European  Insurance  and 
Occupational  Pensions  Authority  (EIOPA)  to  examine  whether  the  detailed  calibration  of 
capital requirements for investments in certain assets under the Solvency II regime (including 
infrastructure financing and project bonds; SME financing; debt securitisation etc.) should be 
adjusted  to  ensure  there  are  no  obstacles  to  long-term  financing,  albeit  without  creating 
additional  prudential  risks.  The  Commission,  Council  and  Parliament  have  also  discussed 
measures to facilitate the provision of insurance products with long-term guarantees and long-
term investments under Solvency II. EIOPA will assess these measures by June 2013. Based 
on these technical findings, the Commission will report on appropriate measures that could be 
included in the Solvency II Directive or in the related Delegated Acts. 

Pension  funds  need  to  manage  their  risks  in  order  to  generate  the  required  level  of  annual 
returns  for  their  beneficiaries.  Pension  fund  capital  rules  differ  across  Member  States  and 
differ  from  those  for  insurers  to  take  into  account  the  different  risks  associated  with 
occupational  pension  funds  and  the  funding  resources  they  may  access.  The  Commission 

17 
18 

See Fitch 2011 and EFAMA (2012). 
See http://ec.europa.eu/internal_market/insurance/solvency/future/index_en.htm.  

9 

 
 
                                                            
plans  to  review  the  Institutions  for  Occupational  Retirement  Provision  (IORPs)  Directive.19 
The  review  aims  inter  alia  to  strengthen  the  protection  of  scheme  members  and  facilitate 
cross-border activity in this field. It will be important to ensure that new prudential rules for 
occupational pension schemes do not discourage sustainable long-term financing. The review 
of the IORPs Directive will therefore need to take into account the potential impacts on long-
term financing and economic growth. 

However,  beyond  prudential  rules,  a  number  of  other  structural  factors  affect  the  ability  of 
institutional investors to play a long-term financing role. The economic downturn is likely to 
have  a  lasting  impact  on  long-term  asset  allocation  strategies  of  institutional  investors  by 
promoting  more  conservative  investment  strategies.  For  example,  the  average  exposure  to 
infrastructure assets of institutional investors remains low compared to their allocation to real 
estate  and  to  actual  infrastructure  investment  needs.  In  terms  of  risk  management  and 
diversification, institutional investors may have concerns around the large scale of long-term 
investment projects. The asset management functions of non-bank institutional investors may 
also be unaccustomed to dealing with more illiquid assets, tasks which were previously often 
carried  out  by  monoline  insurers  which  guaranteed  such  assets.  Over  time,  this  means  that 
some investors may need to extend their existing skills to support their investment decisions.  

There may therefore be scope to consider initiatives designed to pool financial resources20 and 
to  structure  financing  packages  according  to  different  phases  of  risk.  Dialogue  between 
investors and non-financial corporates, as well as through the dissemination of good practices 
and  case  studies  could  help  here.21  The  Commission  has  also  already  committed22  to  make 
proposals on possible forms of long-term investment funds (LTIF). Early indications from 
stakeholders suggest that a new LTIF vehicle could facilitate the raising of capital across the 
Union.  It  might  help  large  and  mid-range  institutional  investors  to  invest,  for  example,  in  a 
range of infrastructure projects. The LTIF will help institutional investors with diversification 
and risk spreading. In addition, LTIF managers may bring additional expertise in how to look 
at  the  underlying  transactions,  or  in  how  to  select  and  manage  long-term  infrastructure 
projects.   

Questions:  

6)  To  what  extent  and  how  can  institutional  investors  play  a  greater  role  in  the  changing 
landscape of long-term financing? 

7)  How  can  prudential  objectives  and  the  desire  to  support  long-term  financing  best  be 
balanced  in  the  design  and  implementation  of  the  respective  prudential  rules  for  insurers, 
reinsurers and pension funds, such as IORPs? 

8)  What  are  the  barriers  to  creating  pooled  investment  vehicles?  Could  platforms  be 
developed at the EU level?  

9) What other options and instruments could be considered to enhance the capacity of banks 
and institutional investors to channel long-term finance?  

19 
20 

21 

22 

See http://ec.europa.eu/internal_market/pensions/directive/index_en.htm. 
Existing examples include the proposed Pension Infrastructure Platform in the UK and the ideas for a 
common private equity and infrastructure fund between some regionally-based pension funds. 
For  example,  a  finance  roundtable  has  been  established  to  identify  opportunities  to  develop  adapted 
finance and innovative financial instruments for supporting resource-efficiency actions 
See http://ec.europa.eu/internal_market/smact/index_en.htm. 

10 

 
 
                                                            
The combined effects of regulatory reform on financial institutions 

The  EU  has  been  pursuing  a  comprehensive  programme  of  financial  reform. 
When  taking  stock  of  all  enacted  and  planned  future  changes  to  prudential 
regulations  addressing  the  various  financial  actors  (banks,  insurers,  pension 
providers  etc.),  an  important  question  is  whether  their  cumulative  impact  on 
long-term  macroeconomic  capital  formation  could  be  greater  than  the  simple 
sum  of  effects  of  each  reform  taken  in  isolation.  For  example,  if  banks  reduce 
their exposure to long-term real assets as a consequence of increasing liquidity 
requirements, institutional investors with long-term liabilities could fill the gap 
as  long  as  the  regulatory  framework  avoids  an  excessive  focus  on  short-term 
volatility. However, the simultaneous introduction of liquidity requirements for 
different  financial  market  players  may  discourage  investments  in  less  liquid 
assets  and  hence  block  several  possible  financing  channels  for  long-term 
investment at the same time.  

This calls for a close monitoring of any cumulative effects of prudential reforms. 
International  regulatory  bodies  such  as  the  Financial  Stability  Board  and  the 
G20  Group  of  Finance  Ministers  and  Central  Banks  are  already  looking  into 
this. The challenge consists in achieving the regulatory goals of greater macro-
financial  stability  and  global  regulatory  convergence  in  a  way  that  minimises 
any negative incentives for financing productive long-term investment. 

Question: 

10) Are there any cumulative impacts of current and planned prudential reforms on the level 
and cyclicality of aggregate long-term investment and how significant are they? How could 
any impact be best addressed? 

3.2. 

The  efficiency  and  effectiveness  of  financial  markets  to  offer  long-term 
financing instruments 

Alongside 
investors,  well-functioning  and  deep  capital  markets  and 
infrastructures are needed to offer a wider range of instruments to channel long-term finance.  

institutional 

European  bond  markets  have  developed  remarkably  strongly  over  the  last  few  decades.23 
However,  non-financial  corporate  bonds  in  Europe  account  still  for  only  15%  of  corporate 
debt  compared  to  other  economies.  In  practice  only  large  corporates  have  an  access  to 
European  bond  markets,  whereas  most  mid-caps  and  SMEs  are  barely  able  to  tap  the  bond 
markets. European securitisation markets are also under-developed compared to other parts of 
the world, further limiting the range of long-term financing instruments available. 

The  Commission  has  proposed  reforms  to  improve  market  structure  through  the  creation  of 
new trading venues; enhance transparency and information efficiency; enhance requirements 
to reduce short-term and speculative trading activities; and, improve investor protection.24 The 
extent  to  which  these  reforms  succeed  in  ensuring  that  capital  markets  channel  long-term 
financing as effectively as possible will need to be monitored. Further efforts may be needed.  

23  

24 

For example, aggregate outstanding amounts of debt securities issued by non-financial corporations in 
the euro area totalled €940bn in Ju ly 2012, having risen from about €652bn at the beginning of 2008 
(Source: ECB). 
See http://ec.europa.eu/internal_market/securities/isd/mifid_en.htm. 

11 

 
 
 
 
                                                            
Covered bond25 markets have proved relatively resilient during the crisis. However, markets 
are fragmented along national lines and further analysis is required to explore whether and to 
what  extent  greater  harmonisation  could  spur  the  use  of  covered  bonds,  in  line  with  recent 
market-led initiatives while taking due account of the concerns linked to potential increased 
asset encumbrance of banks’ balance sheets. 

Reshaping  securitisation  markets  could  also  help  unlock  additional  sources  of  long-term 
finance.  Subject  to  appropriate  oversight  and  data  transparency,  they  can  help  financial 
institutions free capital, which can then be mobilised for additional lending, and manage risk. 
Market-based initiatives to stimulate securitisation markets include emerging labels for high-
quality,  transparent  and  standardised  securitisations.  There  is  scope  to  develop  simple 
securitisation products based clear and unleveraged structures, using well-selected, diversified 
and  low-risk  underlying  assets.  Dedicated  markets  especially  for  SMEs  and  adequate 
prudential  rules  and  supervision  systems  are  important  topics  to  consider.  Further 
consideration could be given to products linked to specific sectors.  
The EU as a whole has never had a true European project bond26 market. The Commission, 
together  with  the  EIB,  has  begun  to  address  this  issue  by  implementing  the  Project  Bond 
initiative,  a  financial  market  solution  to  address  market  imperfections  and  creditworthiness. 
The initiative seeks to demonstrate the feasibility of bond financing for infrastructure projects 
and  ultimately  aim  to  develop  a  liquid  project  bond  market.  Although  still  at  a  small  scale, 
market  participants  are  also  developing  various  investment  platforms,  products  and  tools  to 
stimulate  project  bond  markets.  There  is  merit  in  reflecting  on  how  to  promote  the  use  of 
project  bonds  further,  also  taking  into  account  the  planned  interim  evaluation  of  the 
initiative.27 

Many  also  claim  that  the  economy,  businesses  and  investment  projects  need  more  equity, 
rather  than  more  debt.  Equity  can  be  a  better  financing  instrument  for  long-term,  high-risk 
investments,  as  well  as  for  investments  with  significant  information  asymmetries  and  moral 
hazard.  Since  the  crisis,  macroeconomic  uncertainty  and  the  low  interest  rate  environment 
may  have  affected  companies’  demand  and  risk  appetite  for  long-term  equity  capital. 
Investors  have  instead  sought  refuge  in  government  debt  instruments  with  strong 
creditworthiness.  In  parallel,  market  windows  for  IPOs  have  become  smaller  than  ever, 
limiting companies’ access to capital and European stock exchanges increasingly play a role 
as  providers  of  liquidity,  rather  than  fresh  capital.  Overall,  the  cost  of  equity  capital  has 
remained  high,  while  the  cost  of  debt  finance  has  fallen.  This  highlights  the  equity  gap  in 
Europe,  which  is  likely  to  take  time  to  address.  These  developments  appear  to  have  had  a 
bigger  impact  on  mid-caps.  Government  policies  and  regulations  need  to  be  as  neutral  as 
possible  with  respect  to  private  agents'  choices  between  equity  and  debt  financing  (for 
example, see below on corporate taxation). 

Questions: 

11) How could capital market financing of long-term investment be improved in Europe? 

25  

26  

27  

Covered Bonds are bonds backed by pools of mortgages that remain on the issuer’s balance sheet, as 
opposed to mortgage-backed securities, where the assets are taken off the balance sheet. 
Project  bonds  are  private  debt  issued  by  a  project  company  to  finance  a  specific  off-balance-sheet 
project. 
This could include: a) standardisation and labelling of project bonds issued by project companies in the 
EU;  b)  whether  a  specific  regulatory  framework  is  needed;  and  c)  analysing  the  need  and  merit  for 
working  on  the  development  of  a  project  bonds  market  (e.g.  through  a  trading  platform).  Similarly, 
Project  Bonds  could  be  extended  to  Green  Bonds  and  dedicated  industrial  Demonstration  Project 
Bonds, including for first-of-a-kind, commercial-scale industrial demonstration projects. 

12 

 
 
                                                            
12) How can capital markets help fill the equity gap in Europe? What should change in the 
way  market-based  intermediation  operates  to  ensure  that  the  financing  can  better  flow  to 
long-term investments, better support the financing of long-term investment in economically-, 
socially-  and  environmentally-sustainable  growth  and  ensuring  adequate  protection  for 
investors and consumers?  

13)  What  are  the  pros  and  cons  of  developing  a  more  harmonised  framework  for  covered 
bonds? What elements could compose this framework? 

14)  How  could  the  securitisation  market  in  the  EU  be  revived  in  order  to  achieve  the  right 
balance  between  financial  stability  and  the  need  to  improve  maturity  transformation  by  the 
financial system?  

3.3 

Cross-cutting factors enabling long-term saving and financing 

There are a number of more cross-cutting factors relevant to long-term investment that should 
also be considered given the impact they can have on both the supply and intermediation of 
long-term financing. 

The  actions  of  public  authorities,  including  taxation  regimes,  have  an  important  role  in 
inducing long-term investments projects, build incentives and capacity for households to save 
over  the  long  term  and  for  market  participants  to  channel  long-term  finance  to  productive 
investments. Long-term policy frameworks set by public authorities support the development 
of strategic investment agendas beyond the political cycle, providing greater transparency and 
increased certainty for investors and corporates. It is important that state intervention in this 
context does not distort competition, crowd our private investors or destroy the level playing 
field in the Single Market.  

Some  Member  States  have  also  taken  action  to  promote  long-term  saving  and  investment 
decisions  by  households.  Auto-enrolment  retirement  schemes  have  been  adopted  in  some 
countries.  Others  have  introduced  targeted  savings  accounts28  to  support  the  financing  of 
long-term investment projects, providing a (government) guaranteed fixed return and in some 
cases  with  certain  tax  concessions.  The  funds  in  these  accounts  are  then  invested  in  public 
goods such as hospitals, social housing and universities. In the longer term, it may be worth 
considering whether the availability of specific vehicles at the EU level could help mobilise 
greater  longer-term  savings,  more  directly  linked  to  wider  societal  objectives.  This  model 
would need adapting to be applicable at the EU level.  

Valuation measurements, accounting principles and the strategies deployed by asset managers 
are  also  cited  by  many  commentators  as  factors  that  complicate  the  intermediation  chain, 
increase  the  costs  of  intermediation  and  create  misaligned  incentives,  such  as  those  arising 
from the bias towards speculation and short-termism, which are also due to perceived higher 
risks and delayed returns linked to long-term investment.  

Question:  

15) What are the merits of the various models for a specific savings account available within 
the EU level? Could an EU model be designed? 

Taxation  

28 

For  example,  the  Livret  A  in  France;  the  libretti  postali  in  Italy;  and  the  Bausparvertrag  (contractual 
savings for housing finance) in Germany. 

13 

 
 
                                                            
The structure and level of taxation can have an impact on investment and savings decisions 
and therefore on growth. Generally, tax systems should be designed in such a way as to distort 
as little as possible the economic decisions of citizens and companies, unless the taxes intend 
to correct externalities arising from specific and well-defined market failures: 

• 

• 

• 

Tax and investment: Corporate income taxation (CIT) is one of many factors 
influencing decisions over levels of investment, as well as how it is financed. 
In  particular,  CIT  systems  in  most  Member  States  tend  to  favour  debt  over 
equity,  creating  incentives  for  higher  leverage  for  firms,  because  interest 
payments are deductible, while there is generally no such relief for the return 
on capital. A well-designed tax base that reduces the leverage distortion could 
also  make  companies  less  vulnerable  to  a  short-term  reduction  in  credit. 
Reforms  that  try  to  eliminate  this  distortion  are,  however,  found  in  very  few 
Member States. Further discussions on the design of corporate tax bases with 
respect to their financing neutrality could therefore be useful across the EU; 

Tax and savings: The taxation of savings has a number of important economic 
implications, including by affecting the total amount of savings in the economy 
and thereby influencing capital allocation and investment. Given these effects, 
tax  policies  in  this  area  have  to  be  designed  carefully.  Many  Member  States 
have  already  put  in  place  a  number  of  incentives  to  increase  (long-term) 
savings,  notably  with  respect  to  pension-related  savings.  In  addition,  many 
Member  States  apply  dual  income  tax  systems,  where  capital  income  is 
generally taxed separately at a lower rate than other sources of income; and 

Tax  incentives:  Tax  incentives  are  often  considered  as  instruments  to 
encourage  certain  types  of  investment;  a  tax  subsidy  might  be  justified  when 
the  social  return  to  an  investment  is  higher  than  the  private  return  of  the 
investor  and  therefore  investment  levels  are  below  the  social  optimum  (e.g.  
R&D  and  environmental  concerns).  While  there  are  cases  for  using  tax 
incentives,  they  can  also  create  administrative  burdens  by  increasing  the 
number  of  exemptions  or  additional  rules  to  be  applied.  Also,  in  some  cases, 
the multitude of different national rules may create arbitrage possibilities.  

Questions: 

16)  What  type  of  CIT  reforms  could  improve  investment  conditions  by  removing  distortions 
between debt and equity? 

17)  What  considerations  should  be  taken  into  account  for  setting  the  right  incentives  at 
national  level  for  long-term  saving?  In  particular,  how  should  tax  incentives  be  used  to 
encourage long-term saving in a balanced way?  

18) Which types of corporate tax incentives are beneficial? What measures could be used to 
deal with the risks of arbitrage when exemptions/incentives are granted for specific activities?

19) Would deeper tax coordination in the EU support the financing of long-term investment?   

Accounting principles 

Accounting is not neutral, it shapes economic decisions: accounting standards and measures 
(such  as  the  IFRS)  help  provide  a  common  language  between  entrepreneurs,  investors  and 
public  authorities,  supporting  confidence  and  safety.  This  means  they  have  to  reconcile 
different  points  of  view:  an  economic  interest  and  a  financial/investor  interest.  Fair  value 
accounting  principles  can  enhance  the  transparency  and  consistency  of  the  financial 

14 

 
 
information since they show the market value of assets and liabilities and provide information 
on the relative financial condition of different institutions. But it may also be detrimental to 
stability and long-term financing horizon. For example, some research highlights a reduction 
by  institutional  investors  in  equity  allocations  in  investment  portfolios,  since  equity  is 
considered more volatile and risky than bonds. Other research argues that market-consistent 
valuation may encourage long-term investors to increase their risk exposure, if the volatility is 
recognised outside their profit and loss accounts. There is merit in examining further whether 
these standards are fit for purpose when it comes to long-term investment. In this context, it 
would be useful to identify ways to balance the accuracy of the information given to investors 
with sufficient incentives to hold and manage very long-term assets. 

Question: 

20) To what extent do you consider that the use of fair value accounting principles has led to 
short-termism in investor behaviour? What alternatives or other ways to compensate for such 
effects could be suggested? 

Corporate governance arrangements 

The  way  in  which  assets  are  managed  can  play  an  important  role  in  long-term  financing  in 
terms  of  aligning  the  incentives  of  asset  managers,  investors  and  companies  on  long-term 
strategies,  mitigating  concerns  around  short-termism,  speculation  and  agency  relationships. 
Rules are already in place as regards fiduciary duties, conflicts of interest, remuneration, the 
exercise  of  voting  rights  and  cost  disclosures,  and  the  provision  of  investment  advice  and 
portfolio  management.29  Further  action  is  also  described  in  the  Action  Plan  on  European 
company law and corporate governance,30 including through possible modifications to the 
shareholders’  rights  Directive.  Additional  steps  could  be  envisaged,  including  further 
assessing the way asset managers' incentives are structured to take better account of long-term 
considerations and requiring more transparency from asset managers on the fulfilment of their 
fiduciary  duties.  Ideas  have  also  been  advanced  to  encourage  greater  long-term  shareholder 
engagement, which could be subject to further consideration, such as analysing the possibility 
of options around granting increased voting rights or dividends to long-term investors. 

Questions:  

21) What kind of incentives could help promote better long-term shareholder engagement?  

22) How can the mandates and incentives given to asset managers be developed to support 
long-term investment strategies and relationships? 

23)  Is  there  a  need  to  revisit  the  definition  of  fiduciary  duty  in  the  context  of  long-term 
financing? 

Information and reporting 

Recent analyses highlight a growing demand for disclosure of non-financial information by 
companies.  Research  suggests  that  companies  which  pro-actively  manage  sustainability 
aspects  of  their  operations  consistently  have  a  lower  cost  of  capital  and  tend  to  outperform 
their competitors over the long term. Generic requirements for disclosure might not be enough 

29 

30 

See http://ec.europa.eu/internal_market/investment/ucits_directive_en.htm and 
http://ec.europa.eu/internal_market/investment/alternative_investments_en.htm.  
See 
governance-action-plan_en.pdf. 

http://ec.europa.eu/internal_market/company/docs/modern/121212_company-law-corporate-

15 

 
 
                                                            
to stimulate decisions on long-term investments, so the Commission is working on developing 
a more robust non-financial reporting framework. Non-financial disclosure by asset managers 
and  owners  may  also  merit  further  reflection,  including  on  how  to  reflect  the  specific  risks 
and  impacts  linked  to  sustainability  in  portfolio  management.  Many  commentators  also 
consider that quarterly reporting creates the wrong incentives, pushing market participants 
to  focus  on  very  short-term  results.  In  the  review  of  the  Transparency  Directive,31  the 
Commission has proposed lifting the obligation for quarterly reporting.  

Benchmarks  and  credit  ratings  may  focus  also  on  annual  or  short  horizons.  The 
Commission  has  proposed  tightening  the  rules  to  reduce  reliance  on  traditional  ratings  and 
political  agreement  was  reached  on  several  legislative  reforms  in  November  2012.32  The 
development of metrics and ratings that balance fostering a long-term perspective with short-
term accountability could provide a useful tool to assist long-term investors. 

Questions:  

24) To what extent can increased integration of financial and non-financial information help 
provide a clearer overview of a company’s long-term performance, and contribute to better 
investment decision-making? 

25) Is there a need to develop specific long-term benchmarks? 

3.4 

The ease of SMEs to access bank and non-bank financing  

The small and medium-sized companies (SMEs) of today have the potential to underpin the 
long-term  growth  of  the  future.  They  have  historically  faced  significant  difficulties  in 
accessing  funding  to  grow.  Given  their  reliance  on  bank  financing,  these  difficulties  are 
reinforced given bank deleveraging. In addition, they are now faced with fragmented financial 
markets in the EU, as access to finance conditions vary considerably from country to country. 

The  reduced  availability  of  bank  finance  has  already  spurred  policy  action  to  promote  the 
development  of  alternative,  non-bank  channels  for  SME  lending.  In  2011,  the  Commission 
adopted an action plan to address the financing problems faced by SMEs.33 Certain initiatives 
have  already  been  agreed,  including  new  EU  frameworks  for  investment  in  venture  capital 
and  in  social  entrepreneurship  funds.  Some  policy  initiatives  are  also  underway  to  facilitate 
SMEs’  access  to  equity  markets.  However,  other  legislative  proposals  linked  to  the  action 
plan  have  yet  to  be  adopted.  Proposals  have  also  been  presented  to  allow  the  operators  of 
multilateral trading platforms to be registered also under the label of "SME growth market"; 
and, for a proportionate regime that will decrease administration costs and burdens for SME's 
accessing markets for funding.34 In parallel, there has been growth in long-standing markets, 
such as asset finance and supply-chain finance, as well as financial innovations making use of 
technology and the internet, for example through crowd-funding.  

But  these  measures  may  not  be  sufficient  to  address  the  difficulties  of  SMEs  to  access  
finance. Further steps could be considered, including: 

31 

32 
33 
34 

http://ec.europa.eu/internal_market/securities/docs/transparency/modifying-proposal/20111025-

See 
provisional-proposal_en.pdf. 
See http://ec.europa.eu/internal_market/securities/agencies/index_en.htm. 
See http://ec.europa.eu/enterprise/policies/finance/files/com-2011-870_en.pdf. 
See http://ec.europa.eu/internal_market/securities/prospectus/index_en.htm. 

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• 

• 

• 

• 

• 

Developing  venture  capital.    The  venture  capital  sector  suffers  from  lack  of 
resources  and  is  influenced  by  bank  and  insurance  prudential  regulation. 
Funds-of-funds  could  be  efficient  instruments  to  increase  the  volume  of 
venture  capital.  A  fund  of  guarantees  for  institutional  investors  could  further 
reduce the constraints in this market; 

Developing  dedicated  markets  and  networks  for  SMEs.  Venture  capital 
funds are also dependant on well-performing SME-oriented stock exchanges to 
turn  their  investments  into  initial  public  offerings.  Measures  could  include 
creating a distinct approach for SMEs, going further than the current MiFID II 
proposal,  and  include  the  development  of  specific  accounting  rules  for  listed 
SMEs  and  new  trading  platforms.  Dedicated  SME  markets  could  help  raise 
their visibility, attract new investors and support the development of new SME 
securitisation instruments. Developing frameworks for business networks could 
favour  SME  pooling,  risk  sharing,  mutualisation  and  diversification  and  thus 
improve their access to finance;   

Developing  new  securitisation  instruments  for  SMEs.  The  Commission 
already  has  a  SME  securitisation  instrument  in  place  and  has  proposed  to 
continue offering support for securitisation through the COSME programme. In 
addition,  under  EU  criteria  for  SMEs’  industrial  investments  of  European 
interest, vehicles for structured credits could receive European labels. In view 
of  the  wide  differences  between  industrial  sectors  and  between  investment 
cycles, these instruments should be differentiated;  

Developing  standards  for  credit  scoring  assessments  of  SMEs  could  help 
address the lack of reliable information about SMEs and the related difficulty 
for  potential  investors  in  evaluating  their  credit  worthiness.  Developing 
common  minimum  quality  standards  on  external  evaluation  of  mid-caps  and 
SMEs could further facilitate their access to finance, including across borders, 
and deepen market integration; and 

Developing or promoting other "non-traditional" sources of finance, such 
as leasing; supply chain finance; internet-based sources of funding like crowd-
funding,  etc.  Further  reflection  is  needed  about  how  to  ensure  these  markets 
grow  on  a  sustainable  basis  and  are  properly  supported  within  a  regulatory 
framework. 

Questions: 

26) What further steps could be envisaged, in terms of EU regulation or other reforms,  to 
facilitate SME access to alternative sources of finance? 

27) How could securitisation instruments for SMEs be designed? What are the best ways to 
use  securitisation  in  order  to  mobilise  financial  intermediaries'  capital  for  additional 
lending/investments to SMEs? 

28)  Would  there  be  merit  in  creating  a  fully  separate  and  distinct  approach  for  SME 
markets?  How  and  by  whom  could  a  market  be  developed  for  SMEs,  including  for 
securitised products specifically designed for SMEs’ financing needs? 

29) Would an EU regulatory framework help or hinder the development of this alternative 
non-bank  sources  of  finance  for  SMEs?  What  reforms  could  help  support  their  continued 
growth? 

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Question: 

30) In addition to the analysis and potential measures set out in this Green Paper, what else 
could contribute to the long-term financing of the European economy? 

4. 

NEXT STEPS 

On  the  basis  of  the  outcome  of  this  consultation,  the  Commission  will  consider  the 
appropriate  actions  to  pursue  further.  The  responses  received  will  be  available  on  the 
Commission website unless confidentiality is specifically requested, and the Commission will 
publish a summary of the results of the consultation. 

Stakeholders  are  invited  to  send  their  comments  by  25  June  2013  to  the  following  email 
address: markt-consultation-long-term-financing@ec.europa.eu 

18