Bank of Lithuania
2017-09-14
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Vitas Vasiliauskas. Introductory remarks at Eurofi discussion chaired by V. Vasiliauskas. Tallinn, September 13, 2017.

It is my pleasure to have this opportunity to discuss with you the development of Baltic, Central and Eastern European capital markets in the context of Capital Markets Union.

It is my pleasure to have this opportunity to discuss with you the development of Baltic, Central and Eastern European capital markets in the context of Capital Markets Union.

As we all know, the region is heavily dependent on traditional bank lending. This makes our financial systems vulnerable. It also limits the channels to finance the real economy, especially small and medium enterprises. Therefore, from the point of view of Baltic and Central and Eastern European states, Capital Markets Union development is of critical importance, as it helps, firstly, to create additional sources of funding and, secondly, to diversify risks. We must frankly admit that progress with Capital Markets Union development has not been as rapid as expected. This may suggest that a stronger national push is needed.

However, we have to realize that placing too much emphasis on regional markets may lead to several competing regulatory blocks within the EU. That outcome should be avoided.

Bearing this in mind, a possible way forward might be based on domestic best practices. Analyzing them and, when viable, transferring them to the EU level.

For example, such a model might work well when it comes to sectors such as crowdfunding. Further development of this alternative funding sector would benefit from more harmonization of the currently highly fragmented regulation at the European level.

Such a strategy may prove particularly reasonable when dealing with still “incognita” innovative financial instruments, so called ‘frontier’ sectors.

We are still largely unaware of what are the most appropriate regulatory tools for the majority of innovative FinTech products at the national level. Authorities across Europe are trying to figure this out.  Some countries, such as Lithuania, have established so-called ‘sandbox’ regimes to gather the necessary know-how. Therefore, at this point, trying to construct effective EU-level instruments may be like walking blindfolded.

On a broader note, I believe that novel solutions offer the possibility to strengthen capital markets in regions where they are currently underdeveloped. This would make the benefits of Capital Markets Union more evenly spread across the EU.