Covid-19: Economic recovery? Relying on banks restricts growth opportunities

European capital markets provided record amounts of funding to support businesses and economies in 2020. However, lack of progress on the Capital Markets Union could hold back Europe’s economic recovery.

The third edition of the “Capital Markets Union Key Performance Indicators”, authored by AFME with the support of the European Crowdfunding Network (ECN) among a large number of European trade associations, points out that undersized equity markets mean SMEs continue to rely on banks so restricting their opportunities to grow.

Indeed, bank lending has continued to consolidate as the main source of funding for SMEs totalling 573 billion Euros in the first semester of 2020 compared with only 14.1 billion Euros in risk capital investment.

In other words, venture capital, private equity, angel investing and equity crowdfunding while representing a viable alternative to banks, continue to play a marginal role in capital market funding.

Source: Capital Markets Union
Key Performance Indicators – Third Edition
European Capital Markets – challenges and progress in 2020

In commenting the report Adam Farkas, Association for Financial Markets in Europe’s Chief Executive, said:

“Over recent years, these CMU reports have evidenced that while progress has been made in advancing the role of capital markets in Europe, there is still much work to be done to reduce Europe’s overwhelming reliance on bank lending for funding its economy.”

Looking in particular at equity crowdfunding, a light of hope could come from the harmonisation of EU regulation which is expected to increase capital flows cross border.

The new ECSP (European Crowdfunding Service Provider for Business) regulation aimed at stimulating a pan European community of early-stage investors and creating a single market for crowdfunding platforms is a step in the right direction, the report concludes.

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