Capital markets should play a part in the post-Covid recovery, says think tank
Capital markets have and will continue to play an integral role in supporting Europe’s economic recovery, according to think tank New Financial.
It has today published a report on how banks and capital markets can play a part in the response to the coronavirus crisis.
New Financial argues that while banks and capital markets were a big part of the problem during the global financial crisis, this time round they can be part of the solution.
The growth in bank lending throughout this crisis, supported by government-backed schemes, has been essential to keep a number of companies afloat. Net new banking lending to non-financial companies in the EU between March and June was €302bn – nearly five times higher than in the same period last year (€66bn).
In the UK, net new bank lending of £45bn between March and June was nearly 10 times higher than last year (£5.2bn). It has reversed more than a decade of declining bank lending in Europe.
New Financial, which believes Europe needs bigger and better capital markets, argues they often act as a “spare tyre” for economies and complement bank lending.
Capital markets have also stepped up by providing an additional €370bn in funding for around 800 companies across the EU between March and June this year. Companies raised €260bn in the corporate bond market, nearly double the €135bn they raised in the same period last year. THey raised €47bn in equity markets, up from €35bn, and €65bn in leveraged loans (down from €83bn), according to Dealogic.
William Wright, the founder and managing director of New Financial, said: “The report highlights how many countries in the EU don’t have deep enough capital markets to benefit from this additional funding, and outlines a vision for game-changing growth in capital markets in Europe that would help support a more sustainable post-Covid recovery.”
“This makes a strong case to develop bigger and better capital markets and injects a new sense of urgency and ambition into the capital markets union project.”