Ilian Scarlatov: The crisis shows the dependency of the banks in Europe | Sound of Money (12.05.2015)
We are not going to talk about the crisis today, but rather about the conclusions we have made from the crisis, commented Ilian Scarlatov, managing partner of the Bulgarian investment bank Mane Capital and moderator of the Capital Markets panel, during the Sound of Money event, which took place earlier today.
This gives us hope that we are coming out of the financial crisis and shows what could happen in the next 5 years. In fact, what exactly does the financial crisis in Europe teach the capital markets participants? It reveals that there is a very strong dependence of European companies on the banking sector, mainly because those companies use credit financing, said Scarlatov.
The second thing it shows us is that European investors prefer banking products, meaning they don't invest in publicly traded financial instruments. In comparison, American companies are twice less dependent on banking institutions and finance themselves through bonds, shares and other hybrid instruments.
The financial crisis pointed out that the system is not working as it is supposed to be. The goals the European Union has to set were laid out on paper this February in the so called “green paper”. It marks the beginning of the creation of a union between the capital markets in Europe, pointed the managing partner of MANE Capital.
This is something extremely positive and might improve the transition of capital, connectivity between all exchanges, information awareness and achieve larger scale of operations. This would also help solve the lack of financing, a problem small and mid-size companies have been facing in recent years and reduce their dependence on bank loans.
On the other hand, making a whole universe of capital markets available, could help investors see that there are many other alternatives for their savings apart from bank deposits. Almost the whole eastern European system of capital markets has a vertical integration between the capital exchange and the central depository. There are exceptions of course - in Croatia things are different. The American model is implemented there, where the stock exchange and central depository are two independent institutions, said Scarlatov.
Smaller markets are usually targeting local investors and this is likely to continue to be so because local investors feel most comfortable in the local markets.
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