Nicolas Véron

Financial Statements: A holistic perspective on climate and financial policies

In this week's session, I hosted Pierre Wunsch of the National Bank of Belgium and Irene Monasterolo of University of Utrecht, for a spirited conversation on the consistency of the EU's climate and financial regulatory policies. 

Financial Statements: Do EU regulations unduly penalize securitization?

In today's session, I hosted the Bank of France's Emmanuelle Assouan and Sebastian Mack of the Jacques Delors Centre in Berlin, to discuss the trade-offs of EU policy regarding securitization in the context of the Capital Markets Union project.

Bruegel Memos for the new EU leadership 2024: Unite, defend, grow

As every five years since 2009, Bruegel this week published a compendium of memos to the new EU leadership covering many areas of policy. Silvia Merler and I contributed the memo to the new Commissioner for financial services. The memo was discussed at one of the panels of the Bruegel Annual Meetings on Wednesday 4 September. 

Click here for a PDF version of the Financial Services memo. 

PIIE Tracker: China's private sector has lost ground as state sector has gained share among top corporations since 2021

In this latest update of the PIIE tracker jointly prepared with Tianlei Huang and published on September 3, we complement the customary market capitalization analysis with a complementary one based on revenue. 

This half-yearly PIIE tracker of the respective shares of state-owned, mixed-ownership, and privately-owned companies among China's largest companies shows that the private sector has been losing ground while the state has been gaining greater shares among China's top ranked corporations in recent years. Panel a of the chart shows the share of aggregate market capitalization of China's largest 100 listed firms by company ownership, while panel b shows the share of aggregate revenue of all Chinese corporations included in the Fortune Global 500, also by company ownership.

This tracker is based on the methodology defined in our 2022 Working Paper. The private sector is defined restrictively as firms with less than 10 percent state ownership. The state sector includes both mixed-ownership enterprises (MOEs), in which the state owns between 10 and 50 percent, and majority-owned state-owned enterprises (SOEs).

Privately-owned firms' share of market capitalization among China's 100 largest listed companies shrank from a peak of about 55 percent in mid-2021 to just 33 percent at the end of June this year, a decline of more than 40 percent in only three years (see panel a). At the same time, the share of state-owned enterprises, namely those majority owned by the Chinese party-state, rose steadily from less than one-third to about 54 percent.

Though what panel a shows is an indication of market sentiment, not of real economic performance, and it is of relative shares, not absolute levels of market value, this stock price phenomenon is actually not disconnected from economic fundamentals. On the contrary, the two have been remarkably correlated. Panel b shows that the private sector's share in the aggregate revenue of China's largest companies included in the Fortune Global 500 rankings, whether publicly listed or not, has also stagnated in recent years since reaching a peak in 2020.

These developments look increasingly structural. The authorities' stance since 2020, including regulatory tightening and zero-COVID lockdowns, appear to have inflicted long-lasting damage to China's private economy, the dynamism of which was a defining feature of its economic miracle in the past four decades. Nearly 20 months into China's COVID reopening, the private sector has yet to bounce back, despite many pro-private business utterances and gestures from China's leadership. In sum, the findings here corroborate the view that China continues to suffer from "economic long COVID."

Financial statements: The bank-sovereign nexus in developing and emerging economies

In yesterday's session, I hosted the World Bank's Pablo Saavedra and the International Monetary Fund's Ceyla Pazarbasioglu to discuss the interaction between banking sector strength and sovereign creditworthiness, the theme of a forthcoming World Bank publication. 

Financial Statements: The evolution of European banking supervision

In today's session, I hosted Claudia Buch, chair of the Supervisory Board of the ECB, and Karen Petrou to discuss ongoing changes in European banking supervision and how they relate to debates in the United States. 

Financial Statements: Structural changes and policy developments in the Japanese financial system

In today's session, I hosted Japanese FSA Vice Commissioner Toshiyuki Miyoshi and independent writer Richard Katz to discuss ongoing developments and initiatives in relation to Japanese finance. 

Hearing at the Dutch House of Representatives on Russia's immobilized reserve assets

In a parliamentary roundtable held in hybrid format yesterday, I testified on Russia's immobilized reserves together with Marc Roovers (De Nederlandsche Bank), Nico Schrijver (Leiden University), Bill Browder (Global Magnitsky Justice Campaign) and Martin Sandbu (Financial Times). My brief prepared statement was republished by PIIE. The video of the event is available here.

Financial Statements: Update on Ukraine's financial situation as war enters third summer

In this week's episode on June 25, I hosted Maria Repko, deputy director of the Centre for Economic Strategy in Kyiv, and Elina Ribakova of Bruegel, PIIE and the Kyiv School of Economics. 

Europe's Banking Union at Ten: Unfinished Yet Transformative

My new book on European Banking Union was published this week by Bruegel in PDF format, and simultaneously as a Working Paper by the Peterson Institute. Initially suggested two years ago by PIIE President Adam Posen, this was a labor of love that led me to revisit a lot of related literature and interview a number of key protagonists. The Bruegel version includes a wonderful foreword by Bruegel Director Jeromin Zettelmeyer, and will be printed in physical book format in the next few weeks.

Bruegel also organized a launch event on Tuesday (June 25), of which the video recording is available in replay. It featured European Commissioner Mairead McGuinness, former ECB Vice President Vitor Constâncio, and senior Commission official Maarten Verwey, with moderation by Rebecca Christie. 

Separately, independent host Tim Gwynn Jones recorded a podcast in which he quizzed me about some of the main novel findings I presented in the book, particularly the decision-making sequence in late June 2012 that shaped the establishment of European Banking Supervision, the main component so far of the broader banking union project which came into force a decade ago. 

Financial Statements: China's experience of promoting venture capital investment

In yesterday's session, I hosted Li Bo of Peking University Guanghua School of Management and Daniel Gros of the Institute for European Policymaking at Bocconi University, comparing Chinese and European experiences of government intervention in the venture capital market.

Financial Statements: Can auditors better serve investors' needs?

In the session on May 14, I hosted Saba Qamar of the U.S. Public Company Accounting Oversight Board, and Charles Henderson of the UK Shareholders' Association. 

Europe's capital markets union: Make it or break it

This blog post was published in March by Bruegel and PIIE. 

For ten years, the European Union has promoted the project it calls capital markets union (CMU), with the goal of setting up well-developed, well-integrated capital markets that would span the entire union and allow it to mobilize its high savings for growth and investment. But the CMU project has not delivered material results. It should be given a last chance, with a focus on integrating markets supervision at the European level.

The vocabulary of CMU was coined by Jean-Claude Juncker on July 15, 2014, in his maiden speech to the European Parliament as president-elect of the European Commission. In promoting the idea, Juncker was probably motivated by concerns about the trajectory of the United Kingdom, which was becoming increasingly estranged from the momentum of institutional build-up happening in response to the euro area crisis.

The CMU project, the reasoning went, would place the United Kingdom at the center of a happy vision of EU integration that would be naturally London-centric, given the City's dominant role in Europe's capital markets. Simultaneously, the vision of the CMU echoed policy concerns raised by the European Central Bank and others about the need for capital market integration to increase the EU financial system's resilience against asymmetric shocks while not requiring further fiscal integration.

Something for everyone, it seemed. But as discussed in my in-depth analysis published on March 18 by the European Parliament, the price was a built-in lack of clarity on the project's actual aims and, even more so, its policy content. The political imperative not to generate any controversy with London meant that the CMU would only prioritize incremental regulatory adjustments. The implied rejection of any more ambitious options belied the very semantics of capital markets union, which promised—like the banking union initiated in 2012—something more than business as usual.

The European Commissioner then in charge, Jonathan Hill, rationalized this contradiction by trumpeting his focus on "low-hanging fruit," as if the European Union had been neglecting its orchard in the previous 15 years of near-continuous financial-sector reform initiatives. Predictably, not much happened, either before or after the Brexit referendum that removed the CMU's initial motivation altogether.

Ten years on, the CMU project's main features appear largely unchanged from the time of its birth: big on rhetoric, small on policy. Political leaders at EU and national levels pay eloquent lip service to the vision of well-developed, liquid, and deep capital markets, which would boost EU strategic autonomy, power the green transition, enable the blossoming of innovative start-ups and their rapid growth into global champions, and perhaps eventually rival Wall Street. When it comes to action, things suddenly become less awe-inspiring.

To be sure, the EU machine has churned out useful capital markets legislation over the past decade, including the European Single Access Point for corporate disclosures, the so-called consolidated tape of transactions data, and the European Long-Term Investment Funds, which may become a successful investment product. This track record of regulatory reform, however, is no more than in line with the usual pace of regulatory harmonization as seen before CMU was invented.

As for the stated aim of fostering market integration through convergence in structural areas such as taxation, insolvency law, or pension finance, the achievements so far are too minuscule to mention, suggesting that any fruit in these areas outside the core scope of financial services policy should be viewed as rather high-hanging. The ECB has summarized a widespread perception by stating bluntly in a March 7 statement on CMU that "there are no more low-hanging fruits to pick in this area."

Is the CMU project doomed to fail? Possibly. But it can and should be given a last chance. Between the low-hanging fruit of marginal adjustment and the high-hanging ones of taxation, insolvency, and pensions, a mid-hanging fruit beckons that may not be out of reach: supervisory integration, namely the build-up of an authoritative EU capital markets supervisor—a "European SEC," as ECB president Christine Lagarde called it, in reference to the powerful US Securities and Exchange Commission. An effective European markets supervisor could catalyze the gradual dismantling of hidden barriers to cross-border market amalgamation.

In practice, supervisory integration would entail reconstructing the existing European Securities and Markets Authority with new governance, a new funding framework, and possibly new locations that would pave the way to significantly expanding its direct supervision activities. The European Commission attempted something like that in 2017 and failed. But chances of success are greater now, for at least three reasons.

First is a sense of urgency, driven by the perception in the European Union of being left behind by US capital market dynamism and the increasingly pressing necessities of the climate transition and safeguarding EU security. Second, after ten years, the inability of the low-hanging-fruit approach to deliver transformational outcomes has become inescapable. Third, there now exist compelling proofs of concept of integrated European supervision in adjacent areas, principally European banking supervision, which has been generally successful, and also the soon-to-be-established Anti–Money Laundering Authority. Against that backdrop, the idea of EU-level capital markets supervision, which ten years ago could still be dismissed as utopian, looks increasingly like a no-brainer.

Making it happen would finally transform the CMU into a substantial project. Conversely, if a combination of nationalistic reflexes and entrenched special interests stop it from happening, then the time may have come to finally stop talking about capital markets union.

Financial Statements: The International Sustainability Standards Board's first two years

In today's session, I hosted the ISSB's Sue Lloyd and Sylvie Goulard to discuss sustainability-related disclosures, following up on the session two years ago in the very early days of ISSB activity. 

Financial Statements: The rise and decline of venture capital in China

In today's session, I hosted Harvard Business School's Josh Lerner and entrepreneur Rui Ma on the ongoing transformation of China's venture capital investment landscape.  

Financial Statements: The future structure of the US banking sector

In today's session, I hosted Sheila Bair and Graham Steele to discuss the structural impact of the US regional banking crisis of March 2023 and ongoing financial regulatory policy debates.

Study for the European Parliament: Capital Markets Union, Ten Years Later

The European Parliament today published this paper in which I look back at ten years of the EU Capital Markets Union project, lessons learned, and options to revive or eventually abandon it.

Financial Statements: Prospects for reform of emergency liquidity assistance to banks in the US

In today's session, I hosted Yale's Andrew Metrick and the European Central Bank's Cornelia Holthausen to debate central banks' liquidity provision to banks in the United States, the euro area, and beyond. 

Financial Statements: How banking prudential policy can respond to climate change risks

In today's session, I hosted Martien Lubberink and Sylvie Mathérat to discuss the interplay between climate concerns and banking prudential regulation and supervision. 

Financial Statements: China's overhaul of its financial supervisory architecture

In today's session, I hosted Harvard Business School's Meg Rithmire and Yeling Tan of Oxford University and PIIE, for an overall bleak assessment of financial sector reform in China.