Fink calls for Europe to bolster capital markets

Larry Fink has urged Europe to bolster its capital markets, warning that its “excessive reliance” on banks and insurers to fund growth was hobbling the economy and fuelling “frustration” among workers.

Speaking at Deutsche Börse in Frankfurt on Monday night, the chief executive of BlackRock warned that the problems European companies face when tapping bond and equity markets had “stifled economic recovery” on the continent.

“In the years since the crisis, much of Europe’s economic potential has been locked up. Strengthening capital markets and retirement systems can help unlock that potential, and doing so will be vital to Europe’s economic future,” he said.

While the US, where BlackRock, the world’s largest asset manager with about $5tn under management, is based, has much more developed capital markets, European companies are highly dependent on bank lending, which provides about 70 per cent of their funding. European bond markets are also complicated by different insolvency laws across member states.

“The lack of a unified European corporate bond market raises costs for companies, deters investors and holds down liquidity,” Mr Fink said.

In the wake of the financial crisis, European policymakers have become increasingly concerned about the dependence of the economy on bank lending, and the European Commission in 2015 put forward a range of proposals for unifying and broadening European capital markets, known as the “capital markets union”.

Mr Fink praised the EU’s plans, saying it was “an incredibly important step towards fuller and more flexible capital markets”.

But he also warned that the EU was “pulling itself in two directions”, arguing that other initiatives, such as new capital rules for insurers under Solvency II, could “severely restrict a key source of funding for European companies”.

“While a long-term objective is greater funding from capital markets, limiting insurance companies’ capacity for investment before capital markets are fully developed could significantly damage growth.”

Mr Fink said that more needed to be done to standardise data and guidance for savers on how to invest their savings. He also argued that further steps were needed to give big investors more uniform ways to invest.

“Selective standardisation for issuances over €500m would allow these bonds to be traded on exchange, increasing liquidity and reducing the cost of issuance,” he added. “Liquidity can also be increased by responsibly reviving securitisation markets, which will help move loans off bank balance sheets and free up capital for lending.”