andreas dombret : how to meet asia ’ s needs for infrastructure financing – could the european capital markets union be a blueprint? keynote remarks by dr andreas dombret, member of the executive board of the deutsche bundesbank, at the annual meeting of the asian development bank, frankfurt am main, 3 may 2016. * 1. * * introduction distinguished board members of the adb dear panellists ladies and gentlemen it is my pleasure to be here with you today – not least because by attending this panel, i am redeeming the promise i gave my fellow bundesbank board member, joachim nagel, to stand in for him here at the host country seminar. he has accepted a leading position at kfw group – whose history as a development bank is closely interwoven with economic prosperity in germany. aside from this particular crossover, the tasks of central banks and development banks have other meaningful overlaps as well. at the very least, both kinds of institution have a keen interest in funding issues. for example, as part of their financial stability mandates, central banks monitor the financial system – be it bank - based or market - based – to see if it provides sufficiently stable funding for real economic activities. and much like central banks, development banks also reflect on the appropriate balance between funding via banks and funding via the capital markets. 2. asia in need of more infrastructure harnessing stable and reliable funding sources for economic development is particularly important for emerging economies like the asian countries. infrastructure financing plays a key role here, because infrastructure is crucial for sustainable economic growth. given the socio - economic trends in asia, the countries ’ need for more and better infrastructure is plain to see. the numbers involved are utterly breathtaking. according to a recent adb study, 120, 000 people move to asia ’ s urban centres – every single day. as a consequence, the motor vehicle fleet doubles every 5 to 7 years. traffic jams are an inevitable outcome. this leads the adb study to estimate that road congestion costs the asian economies between 2 and 5 % of gdp every year, not to mention the damage done to the environment. this led a japanese research institute to project that asia will need usd 6, 500 billion in infrastructure investment until 2020. the crucial question, then, is how this immense volume can be raised. to begin with, i will argue that infrastructure financing benefits from stable and reliable financial infrastructure. indeed, the numerous development banks play an important role in this respect.

the world bank and the adb, for instance, granted a total of roughly usd 25 billion for infrastructure - related projects in 2014. in addition, the asian infrastructure investment bank and the new development bank can contribute significantly to satisfy asia ’ s need for infrastructure funding. and in many asian countries – in particular those where capital markets are less developed – governments still cover a significant fraction of infrastructure - related costs. bis central bankers ’ speeches still, many observers have their doubts whether asian economies can meet all their funding needs – in particular as banks in some countries ran up huge volumes of non - performing loans and seem to be constrained when it comes to financing new projects. i see a number of similarities here to the euro area and its bank - based financial system. real economic activity in some euro - area countries is being stifled by the non - performing loans which are still weighing on banks ’ balance sheets and making banks reluctant to grant new loans. this is acting as a drag on economic recovery. 3. diversifying funding sources and risk : the goals of the european capital markets union allow me to illustrate why the euro area ’ s banking system plays such a consistently important role in financing the real economy. for one thing, bank credit today makes up around 30 % of borrowing by euro - area enterprises. and business loans still play a key role for domestic banks and savings banks as well. at just over 23 %, loans to enterprises alone constitute a significant portion of the consolidated total assets of the entire euro - area banking system. however, the global financial crisis has made us painfully aware that it is rarely a good idea to place all your eggs in one basket. a system in which enterprises can rely on just a single source of funding will run into difficulties if that source dries up. against this backdrop, the european commission presented an action plan in september 2015 for the establishment of a european capital markets union. its idea is not to suppress funding through banks and savings banks. the optimal funding structure is not an “ either / or ” question. instead, the european capital markets union aims to complement bank - based funding with capital market products. ultimately, then, it ’ s all about diversifying the sources of corporate financing. if we give the capital markets a more prominent role in funding the real economy, that will give businesses broader and better access to funding. what it will also do is create a more efficient financial system that can better support sustained economic growth. the second objective of the european capital markets union is to