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European Central Bank President Christine Lagarde has called for a European version of the U.S. Securities and Exchange Commission (SEC) and harmonized stock exchanges to raise the massive amounts of capital needed to tackle the challenges facing the region.

Speaking at the European Banking Conference, Lagarde said that Europe’s fragmented financial markets hinder corporate finance. She noted that European stock markets are half the size of the United States, while there are three times as many European exchanges. The lack of market depth and liquidity increases the difficulty of developing large capital markets.

Lagarde argued that the European Securities and Exchange Commission, with its wide-ranging responsibilities, including direct supervision, would help to create a single rulebook for European financial markets. She also called for a harmonized market infrastructure for European exchanges, which she said would encourage cross-border trading and reduce costs.

Europe needs harmonized capital markets to meet challenges, says ECB president

The ECB President also stressed the need for greater securitization in Europe. Securitization, the process of packaging and selling loans to investors, is a valuable tool for banks looking to free up capital to make more loans. However, securitization in Europe has been hampered by the stigma associated with collateralized debt obligations (CDOs), which played a major role in the 2008 financial crisis.

Lagarde said the recent decision by the German Constitutional Court to revoke €60 billion in off-budget funding for the climate and energy transition further underscores the need to strengthen securitization. She urged European policymakers to lift restrictions on securitization markets, arguing that this is “more necessary than ever.”

Creating a harmonized capital market in Europe would bring many benefits, including

Increased corporate finance
Lower costs for investors
A more stable financial system
Greater economic growth
Europe’s debt-laden governments cannot be expected to provide all the funding needed to meet the challenges facing the region. Harmonized capital markets will help mobilize private sector finance and ensure that Europe has the resources it needs to invest in its future.

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