TARGET2-Securities (T2S) will be the foundation the Capital Markets Union (CMU) is built upon, according to Mario Draghi, president of the European Central Bank (ECB).
Speaking at the T2S launch celebration in Milan, Draghi said: “The end of the T2S story remains unwritten,” and suggested that with more integration between European Union country members comes an increase in systemic risk, which will require additional regulation.
He said that greater integration in capital markets could make the European Union more effective in dealing with economic shocks, while also allowing more access to varied funding options. This would also help to reduce the link between a firm’s location and the cost of funding.
Citing greater risk sharing and diverse funding sources as the two pillars of the CMU, Draghi said T2S will act as the foundation for establishment, as is will facilitate cross-border bonds and equity trading.
“By removing fragmentation in capital markets, CMU will allow businesses and households to access a larger variety of funds, and stimulate growth,” he said.
“As part of its harmonisation agenda, T2S has taken steps towards many of the goals in the CMU agenda, such as harmonising withholding tax procedures and resolving conflicts of law. In this sense, T2S is a demonstration of the market’s willingness to achieve deeper integration on a European scale.”
Draghi also suggested that additional legislative and regulatory action will be needed in order to remove barriers in market infrastructure, because of the “vast network of legal rules” that can conflict on tax requirements, insolvency procedures and corporate governance.
He said: “We need to have a single rulebook for capital markets, and all market participants must have equal access to markets.”
Further integration of financial sectors could lead to greater systemic risk across Europe, according to Draghi, and therefore a single regulatory supervisor and “macroprudential toolkit” should be established for capital markets.
“If well designed and thoroughly implemented, a genuine capital markets union will deepen the single market and contribute to the development of a more prosperous union. And T2S – a tremendous achievement – will serve as the basis for these further achievements.”
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