CAPITULO 2. MARCO REFERENCIAL
2.5 Estudios y experiencias similares sobre competencias docentes
Presentation by Diego Valiante, discussion led by Jochen Andritzky
Participants (alphabetical)
Jochen Andritzky German Council of Economic Experts
Daniel Gros Centre for European Policy Studies
Jörg Rocholl ESMT Berlin
Diego Valiante European Commission
In his discussion of the paper, Jochen Andritzky raised three issues. First, the European financial system is predominantly bank-based which in part reflects its economic structure (GCEE Annual Report 2015, paragraphs 440ff). While the Capital Market Union (CMU) can improve financing opportunities and risk diversification, it is unlikely to replace the dominance of bank financing. Better risk sharing through banks, including through completing the Banking Union and facilitating the formation of pan-European banks, is therefore an equally important element. Second, to overcome home bias, more forceful measures may be required. While it is important to address issues such as differences in accounting and reporting practices or taxation, these measures will not suffice. In some areas, for instance on insolvency frameworks, differences reflect strong voter preferences or vested interests. Measures, such as concentration limits for sovereign exposures, may be needed. Diego Valiante recalled the importance of trade integration in facilitating close financial integration: trade drives financial integration, not the other way around.
Third, Jochen Andritzky noted that obstacles to deeper integration are multi-faceted and prioritisation is needed. Policymakers should focus on those measures that enhance shock absorption. Some evidence (such as EC 2017) does not provide clear evidence of strong risk sharing even when home bias is low. To justify why more capital market integration (and no fiscal capacity) is needed for shock absorption, a better understanding is necessary of what fosters shock absorption and does not generate undesirable contagion. In response, Diego
Valiante recalled that negative risk sharing mostly originates from procyclical capital flows. In
banking, long-term cross-border loans offer more risk sharing than overnight interbank lending.
Jochen Andritzky furthermore raised the issue of debt bias in corporate financing related to
the tax deductibility of interest expenditures. To this end, the GCEE introduced a concrete proposal for transition to a neutral tax treatment in Germany (GCEE Annual Report 2012, paragraphs 402ff). Daniel Gros mentioned the experience in Belgium, where the introduction of tax rules to allow a deduction of notional interest rates on capital did not produce an effect. Currently, low interest rates reduce the relevance of this issue.
Diego Valiante agreed on the relevance of harmonising insolvency frameworks. The European
Commission’s proposal for early restructuring could be a preliminary step towards harmonisation. Jochen Andritzky pointed out that in normal times, investors tend to pay little
attention to insolvency frameworks. Diego Valiante disagreed and noted that investors are not deterred by higher costs if known ex ante, but by leeway for discretion that cannot be priced, in particular regarding stays in proceedings that are often at the discretion of courts. Insolvency laws provide the loss given default (LGD) of a capital market exposure.
Jörg Rocholl asked whether a conclusive list of barriers to capital market integration had been
identified. Diego Valiante replied that there is no conclusive list, but that there are important areas where action could be considered. For instance, insolvency proceedings, where the possibility of opening secondary proceedings in another member state creates uncertainty, is one of them. Furthermore, different interpretations of accounting standards are a barrier, for instance with regard to adjusted profits or lifetime losses. He recalled that from the outset the US harmonised accounting standards and supervision under the Securities and Exchange Commission (SEC) at the federal level.
Jochen Andritzky questioned whether price convergence is a relevant measure as price
differentiation is a sign of functional market discipline. Diego Valiante agreed that the convergence of sovereign bond yields may be misleading as indicator of financial integration, if there is no convergence in risk sharing across the region. Generally, the convergence of prices is not a good indicator for capital market integration, as long as the investor base remains domestically concentrated.
Jochen Andritzky also raised the issue that national authorities may have a preference to
maintain the current fragmented market structure, as demonstrated by the opposition of debt management offices to Sovereign Bond-Backed Securities (SBBS). Diego Valiante agreed that national interests are strongly in play, especially when it comes to promoting more supervisory convergence, for instance, via passing more responsibility to European Securities and Markets Authority (ESMA).
Daniel Gros recalled that securitisations make up a large part of capital markets. Diego Valiante
noted that large-scale guarantees helped to create deep markets for mortgage-backed securities in the US. In his view, creating equally deep markets in Europe would also require some level of support through public guarantees, even if they create distortions. Daniel Gros
remarked that in total, the US did not incur losses on such guarantees. Jochen Andritzky and
Jörg Rocholl pointed out that several European countries feature sizable markets for mortgage
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