General Information & Client Service
  • Americas: +1.212.553.1653
  • Asia: +852.3551.3077
  • China: +86.10.6319.6580
  • EMEA: +44.20.7772.5454
  • Japan: +81.3.5408.4100
Media Relations
  • New York: +1.212.553.0376
  • London: +44.20.7772.5456
  • Hong Kong: +852.3758.1350
  • Tokyo: +813.5408.4110
  • Sydney: +61.2.9270.8141
  • Mexico City: +001.888.779.5833
  • Buenos Aires: +0800.666.3506
  • São Paulo: +0800.891.2518
July 06, 2018

While speaking at a Conference in Austria, Danièle Nouy of ECB explained the funding challenges faced by small and medium-size enterprises (SMEs). She also discussed how banking regulation and supervision can help alleviate some of the funding constraints of SMEs. If SMEs had a wider set of funding sources to choose from, they would be less dependent on banks. She establishes that the banking union, the capital markets union, and digitalization might help in this regard.

She discussed the levers policymakers need to pull on to improve access to finance for SMEs. The crisis led to higher capital requirements and new capital buffers, such as the capital conservation buffer, were introduced. This triggered some concerns about SMEs in the context that the new buffers would oblige banks to hold more capital against loans to SMEs too—even though such loans had not contributed to the crisis. Thus, the new requirements would overestimate the amount of capital required. To alleviate these concerns, regulators introduced an SME support factor, which reduces the risk-weights for SMEs to balance out the effect of the new capital conservation buffer. In this way, rule makers tailored regulation to ensure that SMEs are not disadvantaged. Of course, banking supervision also plays a role in this.

Citing the example of non-performing loans (NPLs), Ms. Nouy mentioned that during crises, banks with high levels of NPLs tend to charge disproportionately high interest rates on loans to SMEs. This presents another reason for reducing the amount of NPLs on balance sheets of banks. Consequently, guidance has been issued for banks on how to deal with NPLs and how to provision for loans that become non-performing in the future. "Judging by the data, we are on the right track, " as NPLs fell from almost EUR 1,000 billion to just over EUR 720 billion from early 2015 to the end of 2017. Therefore, tough banking regulation and sound supervision do lend some indirect support to SMEs. However, it is still being assumed that banks are the main sources of funding for SMEs. The obvious conclusion is that SMEs would benefit from a wider set of funding sources.

Beyond having access to loans from a wider set of European banks, SMEs should have better options for raising funds on capital markets. On this front, ECB has been a strong supporter of the Capital Markets Union. However, the way toward a truly European capital market is as long as the one toward a truly European banking market—"it might even be longer." This is because "capital markets are very complex and very diverse." For instance, SMEs might benefit from the new framework on securitization as well as from more harmonized regulation for SME listings on public markets across EU. Newly founded SMEs face even bigger problems, as for most of them, funding is still very hard to come by. They are deemed too risky for bank loans and venture capital is close to non-existent in most EU countries. Thus, they have even fewer funding options. A number of fintech activities are seeking to fill this gap. Peer-to-peer lending platforms, for instance, have expanded significantly in recent years. If policymakers want to support SMEs, they need to ensure that such innovations are supported, but also appropriately regulated. Although SMEs face a structural disadvantage when borrowing from banks, this disadvantage becomes even more pronounced in a crisis. Given how important SMEs are for the economy, policymakers are rightfully paying attention to this issue, added Ms. Nouy.

 

Related Link: Speech

Keywords: Europe, EU, Banking, SME, Capital Markets Union, Regulatory Capital, NPLs, ECB

Related Insights
News

BCBS Finds Liquidity Risk Management Principles Remain Fit for Purpose

BCBS completed a review of its 2008 Principles for sound liquidity risk management and supervision. The review confirmed that the principles remain fit for purpose.

January 17, 2019 WebPage Regulatory News
News

HKMA Urges Local Banks to Start Working on FRTB Implementation

HKMA announced that it plans to issue a consultation paper on the new market risk standard in the second quarter of 2019.

January 17, 2019 WebPage Regulatory News
News

EBA Finalizes Guidelines for High-Risk Exposures Under CRR

EBA published the final guidelines on the specification of types of exposures to be associated with high risk under the Capital Requirements Regulation (CRR). The guidelines are intended to facilitate a higher degree of comparability in terms of the current practices in identifying high-risk exposures.

January 17, 2019 WebPage Regulatory News
News

MAS Guidelines on Risk Mitigation Requirements for OTC Derivatives

MAS published guidelines on risk mitigation requirements for non-centrally cleared over-the-counter (OTC) derivatives contracts.

January 17, 2019 WebPage Regulatory News
News

BoE Publishes the Schedule for Statistical Reporting for 2019

BoE published the updated schedule for statistical reporting for 2019. The reporting institutions use the online statistical data application (OSCA) to submit statistical data to BoE.

January 16, 2019 WebPage Regulatory News
News

PRA Delays Final Direction on Reporting of Private Securitizations

PRA and FCA have delayed the issuance of final direction, including the final template, on reporting of private securitizations, from January 15, 2019 to the end of January 2019.

January 15, 2019 WebPage Regulatory News
News

SNB Updates Forms on Supervisory Reporting for Banks

SNB published Version 1.7 of reporting forms (AUR_U, AUR_UEA, AUR_UES, AURH_U, AUR_K, AUR_KEA, and AURH_K) and the related documentation for supervisory reporting on an individual and consolidated basis.

January 15, 2019 WebPage Regulatory News
News

BCBS Finalizes Market Risk Capital Framework and Work Program for 2019

BCBS published the final framework for market risk capital requirements and its work program for 2019. Also published was an explanatory note to provide a non-technical description of the overall market risk framework, the changes that have been incorporated into in this version of the framework and impact of the framework.

January 14, 2019 WebPage Regulatory News
News

EBA Single Rulebook Q&A: First Update for January 2019

EBA published answers to 13 questions under the Single Rulebook question and answer (Q&A) updates for this week.

January 11, 2019 WebPage Regulatory News
News

PRA Proposes to Amend Supervisory Statement on Credit Risk Mitigation

PRA published the consultation paper CP1/19 that is proposing changes to the supervisory statement (SS17/13) on credit risk mitigation.

January 10, 2019 WebPage Regulatory News
RESULTS 1 - 10 OF 2473