20 Feb 2015
Europe's bank-centred financial system challenged - GS
FXStreet (Guatemala) - European Economics Analysts at The Goldman Sachs Group explained Europe’s financial structure weighs on growth.
Key Quotes:
"The Euro area’s recovery from the global financial crisis remains anaemic and, at least in comparison with its Anglo-Saxon peers, Europe’s underlying trend growth rate is modest."
Both cyclical vulnerability and secular weakness have been widely blamed (e.g., in the academic literature and among market participants), at least in part, on the structure of Europe’s financial sector."
"A bank-centred financial system … Europe’s financial system is centred on banks."
"To illustrate, banks provide around 70% of European firms’ external financing, with the remainder coming directly from other sources such as securities markets."
"Leverage in European universal banks has therefore been higher than in their US counterparts. … under challenge in a new global financial environment."
"This bank-centred financial model is being challenged by the experience of the global financial crisis and the international regulatory response that has followed it. The crisis itself demonstrated the vulnerability of bank-dependent borrowers to a credit crunch."
"Developing deep, liquid EU-wide capital markets...In response, the European authorities need to create alternative sources of external finance. This would improve the resilience and reliability of credit supply to the real economy, by creating opportunities to substitute out of bank loans."
"Recently announced initiatives under the umbrella label of ‘capital markets union’ are a step in this direction."
Key Quotes:
"The Euro area’s recovery from the global financial crisis remains anaemic and, at least in comparison with its Anglo-Saxon peers, Europe’s underlying trend growth rate is modest."
Both cyclical vulnerability and secular weakness have been widely blamed (e.g., in the academic literature and among market participants), at least in part, on the structure of Europe’s financial sector."
"A bank-centred financial system … Europe’s financial system is centred on banks."
"To illustrate, banks provide around 70% of European firms’ external financing, with the remainder coming directly from other sources such as securities markets."
"Leverage in European universal banks has therefore been higher than in their US counterparts. … under challenge in a new global financial environment."
"This bank-centred financial model is being challenged by the experience of the global financial crisis and the international regulatory response that has followed it. The crisis itself demonstrated the vulnerability of bank-dependent borrowers to a credit crunch."
"Developing deep, liquid EU-wide capital markets...In response, the European authorities need to create alternative sources of external finance. This would improve the resilience and reliability of credit supply to the real economy, by creating opportunities to substitute out of bank loans."
"Recently announced initiatives under the umbrella label of ‘capital markets union’ are a step in this direction."