EU business lobbyists have launched a campaign to allow small investors like venture capital funds to operate across borders as bank lending threatens to dry up.
BusinessEurope, the corporate lobby, has written to the European Commission demanding an EU passport for funds seeking to raise capital across borders as they argue that new rules for higher amounts of capital on banks’ books will squeeze lending to start-ups.
In Europe, companies, and especially SMEs, depend mostly on national bank lending to access finance.
“Lots of national rules restrict small funds to the member states they are in. Usually they cannot market their funds in other countries,” Erik Berggren from BusinessEurope told EurActiv.
In a letter to the EU commissioner for finance, Michel Barnier, BusinessEurope argues in favour of a passport which includes all small investors, because businesses will struggle to get money from banks that have been asked treble the amount of tangible assets on their books.
“The scope of such a proposal should be broad to include both venture and enterprise capital funds and also other investors such as ‘business angels’, high net worth individuals, and family offices as these are an important part of the investor base of small funds,” reads the letter sent yesterday (16 August).
Overall, banks will need to raise about €423 billion by 2019 to comply with Basel III and the Capital Requirements Directive (CRD) IV, according to a draft proposal released in July.
Not only sovereign debt
BusinessEurope also argues that banks are still putting more faith into sovereign debt than company equity in spite of a run on many European countries’ rising public debts.
Sovereign debt is typically less risky as countries have in the past managed to repay their debts earlier than the private sector. The current sovereign debt crisis, however, also puts a question mark over governments’ reliability.
The tougher capital rules were put in place as it emerged during the crisis that many lenders held more borrowed and toxic assets on their books than actual capital.
Entrepreneurs and start-ups are still suffering from the crisis as venture capitalists and other small investors rein in their spending.
Venture capitalists usually put money into young companies, seeking profit later when the start-ups go public or are bought by larger companies.