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The Euro Capital Market PDF

215 Pages·1999·3.106 MB·English
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The Euro Capital Market TheEuroCapitalMarket.DanielGrosandKarelLannoo Copyright2000JohnWiley&Sons,Ltd.ISBN:0-471-99762-5 This page intentionally left blank The Euro Capital Market DANIEL GROS and KAREL LANNOO JOHN WILEY & SONS, LTD Chichester . New York • Weinheim . Brisbane • Singapore • Toronto V Copyright © 2000 by John Wiley & Sons Ltd, Baffins Lane, Chichester, West Sussex PO19 1UD, England National 01243 779777 International (+44) 1243 779777 e-mail (for orders and customer service enquiries): [email protected] Visit our Home Page on http://www.wiley.co.uk or http://www.wiley.com All Rights Reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, scan- ning or otherwise, except under the terms of the Copyright, Designs and Patents Act 1988 or under the terms of a licence issued by the Copyright Licensing Agency, 90 Tottenham Court Road, London, W1P 9HE, UK without the permission in writing of the publisher. Daniel Gros and Karel Lannoo have asserted their right under the Copyright, Designs and Patents Act 1988, to be identified as the authors of this work. Other Wiley Editorial Offices John Wiley & Sons, Inc., 605 Third Avenue, New York, NY 10158-0012, USA WILEY-VCH Verlag GmbH, Pappelallee 3, D-69469 Weinheim, Germany Jacaranda Wiley Ltd, 33 Park Road, Milton, Queensland 4064, Australia John Wiley & Sons (Asia) Pte Ltd, 2 Clementi Loop #2-01, Jin Xing Distripark, Singapore 129809 John Wiley & Sons (Canada) Ltd, 22 Worcester Road, Rexdale, Ontaria M9W 1L1, Canada Library of Congress Cataloging-in-Publication Data Gros, Daniel, 1955- The Euro capital market / Daniel Gros and Karel Lannoo. p. cm. Includes bibliographical references and index. ISBN 0-471-99762-5 1. Capital market—European Union countries. 2. Monetary policy—European Union countries. 3. European Monetary System (Organization) I. Lannoo, Karel. II. Title. HG5422G68 1999 332'.0414—dc21 99-32598 CIP British Library Cataloguing in Publication Data A catalogue record for this book is available from the British Library ISBN 0-471-99762-5 Typeset in 11/13 pt Palatino by Wyvern 21 Ltd, Bristol Printed and bound in Great Britain by Biddies Ltd, Guildford and King's Lynn. This book is printed on acid-free paper responsibly manufactured from sustainable forestry, in which at least two trees are planted for each one used for paper production. Contents List of Tables vii List of Graphs ix Preface x Foreword xi Executive Summary xiii Introduction 1 1 The Institutional and Regulatory Framework 7 The European Central Bank and its Monetary Policy 7 The institutional framework 9 Strategy 20 Monetary instruments 22 The Regulatory Framework for Capital Market Operators and Products 27 The regulatory framework 28 New priorities 35 2 European Capital Markets at the Start of EMU 39 European Capital Markets: an Overview 39 Stock markets 39 Bond markets 44 The former euro-bond market 46 Money and foreign exchange markets 48 Derivative markets 51 Intermediaries in European Capital Markets 54 Banks 58 Institutional investors 61 Clearing and settlement agents 67 vi Contents 3 Market Restructuring and EMU 72 A More Market-based System to Emerge? 73 Asset Allocation in EMU 78 Bond Markets in the Euro Zone 83 Prospects for the sovereign debt market 83 A corporate bond market to emerge? 89 Mortgage loan markets 90 Equity and Derivatives Markets 93 Securities Clearing and Settlement Bodies 95 Financial Centres 96 4 Governance and Policy 102 Inconsistencies within a Single Capital Market 102 Differences in taxation and related regulations 103 Accounting standards 113 The wider corporate governance framework 117 The Implications of EMU for Capital Market Supervision 122 The EU framework 123 Securities market regulation in EMU and beyond 130 Implications of EMU for Prudential Control 132 The rationale for prudential supervision 135 The institutional set-up 139 The international dimension 147 The implications of EMU and the role of the ECB 150 Outlook 157 Conclusions 162 Appendix 1: Statistical Appendix 165 Appendix 2: The EU Regulatory Framework for the Free Provision of Financial Services 175 References 185 Index 192 List of Tables I.1 How international are European banks with global ambitions? 5 1.1 Headquarters staff at national central banks 14 1.2 The monetary policy operations of the European System of Central Banks 24 1.3 Solvency ratios (1996) in banking 32 2.1 World bond markets by currency (1996) 45 2.2 Top world derivative exchanges (1998) 52 2.3 Concentration in banking 57 2.4 Most important quantitative restrictions on pension fund investments in Europe 64 2.5 Asset structure of life insurance companies (1994) 65 2.6 Asset structure of pension funds (1994) 65 3.1 Amounts of bonds outstanding, total stock market capitalisation and bank assets 76 3.2 Shares of EMU states in outstanding debt and shares in a Euro-bond index 80 3.3 Long-term foreign currency sovereign credit ratings in the EU and yield differentials on Euro-DEM bonds (September 1997) 85 3.4 Sovereign credit ratings in the euro zone (early 1999) 87 3.5 Total volume of mortgage loans outstanding and mortgage bonds outstanding (1997) 92 viii List of Tables 4.1 Resident withholding taxes on interest and dividends in the EU (1997) 107 4.2 Dominant form of shares and voting rights in the EU 120 4.3 An institutional framework for financial market control 147 4.4 Objectives of supervision and deficiencies in the perspective of EMU 156 Al.l Comparative data on European stock markets (1998) 165 A1.2 Evolution of stock market capitalisation 166 A1.3 Domestic listed companies in major EU countries, Switzerland, Japan and the US 166 A1.4 Structural features of general gross government debt (1997) 167 A1.5 Key data on European banking (1996) 168 A1.6 Profitability in banking 169 A1.7 Assets of insurance companies, pension funds, investment funds and banks (1996) 170 A1.8 Pension funds asset growth 171 A1.9 Investment funds asset growth 171 A1.10 Investment funds asset spread in the EU (1997) 172 Al.ll Monetary and bank supervisory functions in the EU, Switzerland and the US 173 A1.12 Regulators of banking, securities and insurance in Europe, Japan and the US 174 A2.1 The regulatory framework for free provision of financial services in the EU 184 List of Graphs 2.1 Stock market capitalisation as % of GDP 41 2.2 Profitability in banking 62 2.3 Asset distribution of investment funds in the EU 68 3.1 Importance of financial intermediaries in the EU, US and Japan 77 3.2 Euro Stoxx 50 index according to sector 81 3.3 Yield differentials with German Bunds 84 Preface This book builds upon the report of a Centre for European Policy Studies (CEPS) working party chaired by Tommaso Padoa-Schioppa on the implications of monetary union for Europe's capital markets. This project was launched in July 1997 and the recommendations, published in June 1998, contributed to the drafting of the European Commission submission on 'Financial Services: A Framework for Action' to the Vienna European Council (December 1998). The book continues the work undertaken by CEPS since the mid- 80s on European monetary and financial market integration, which has resulted in many articles, papers and books, the most well known being the standard work European Monetary Integration, by Daniel Gros and Niels Thygesen. Our aim is to rectify the lack of reference works on European capital markets. While working on the book, we were surprised to see that no unified and comprehensive treatment of this subject was available. We are indebted to many persons who have stimulated our work and helped us with comments and advice, in particular Tommaso Padoa-Schioppa and our colleagues at CEPS. The members of the 1997-98 CEPS working party on 'Capital Markets and EMU' contributed to our first report on this subject. Special thanks go to Nuria Diez Guardia for research assistance and Isabelle Tenaerts for secretarial support.

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