This supplementary report analyses the existence and magnitude of any implicit subsidy for EU banks. Such analysis is required to assess the need for, and benefit of, further reform of the EU banking sector.

Since the financial crisis, the banking industry has undergone dramatic change, as banks and regulators have responded to the weaknesses exposed. The changes made have struck to the core of banks, challenging how and where they operate, and what services they provide. This report summarises those changes, whether driven by new regulatory or commercial imperatives. Whilst EU banks have been the main focus of this study, die to the global impact that European structural reform will have, major Swiss and US banks have been included.

AFME commissioned PwC to undertake a study of the possible impact of proposed bank structural reform regulation. The aim was to expand on the evidence available to policy makers as they consider the further policy development on the requirement for and specification of structural reforms. The study focuses on the impact of the proposals as applied to 18 global ststemically-important banks and large domestic systemically important banks which would be among the main targets of new regulation.

The financial crisis exposed a range of vulnerabilities in the financial system. These included financial weakness of many banks, poor risk management, systemically risky interconnections and, in a number of cases, an absence of intensive supervision. Since then, a significant, multi-year regulatory reform programme has taken place, designed to address these failings and leading to a financial system that is both more resilient and better able to contribute to sustainable growth. The framework is now in place to ensure stronger, safer banks, and to bring an end to “too big to fail”.

AFME's 2014 Annual Review takes stock of a historic12 months which marked not only the culmination of a historic wave of new regulation for banking and the capital markets, but also the creation of a Banking Union. During this time, EU institutions were highly active in pushing through new legislative proposals, with a broad package of reforms adopted on 15 April – Europe’s own ‘Super Tuesday’. For AFME and for our members, 2014 saw seen sustained technical work and continued close engagement with policymakers and regulators, which continued into the Level 2 rulemaking phase.

Bank loans remain the main source of financing of the EU economy, but EU corporates are increasingly raising funds from bond markets and other funding sources. This report examines what role capital markets can play in reviving growth. Also available in: French GermanItalianSpanish

Funding the EU economy - The role of banks and financial markets - inforgraphics. Also available in: FrenchGermanItalianSpanish

The market at a crossroads. What is securitisation? Securitisation is the pooling together of cash-generating assets, such as mortgages, auto loans or SME loans,created by banks and initially funded on their balance sheets, and funding these assets instead by issuing bonds inthe capital markets. These bonds are bought by a range of investors – typically banks’ treasury departments, insurance companies anda range of investment funds. The investors receive regular payments reflecting the interest and principal paymentsmade by the underlying borrowers. Often, the bonds are divided into different tranches with different characteristicsand varying levels of risk. The higher-risk tranches yield a higher return for investors.

Abstract: The EBA has analysed the liquidity of different asset classes as part of its work for the European Commission on definitions to be employed in a European implementation of the Liquidity Coverage Ratio. This paper critically examines the EBA’s analysis, focussing on the exclusion of bid-ask spread data from the evidence employed. Using bid-ask spreads, we show that Asset-Backed Securities (ABS) and Covered Bonds (CB) do not exhibit radically different levels of liquidity in recent years. Furthermore, we show that, based on bid-ask spreads, some non-residential-mortgage-backed ABS (excluded from the LCR in the EBA proposals) have been more liquid than CBs.

1. Executive Summary – The Specific Rationale for Change Given the current state of the European economy, the impact of the Euro zone crisis, pro-cyclical changes to banking regulation, the inability of many European banks to directly access the capital markets, collateral encumbrance constraints, and investor capacity constraints on bank debt, it is important that European policymakers recognise and take proactive steps, together with the industry, to help encourage investment in high quality securitisations. According to recent estimates, Eurozone banks have shrunk by € 3.3 trillion since May 2012 and it is estimated that they will cut around € 2.8 trillion more assets over the next 3-5 years. Corporate loans and are not expected to surpass their pre-crisis peak of € 4.8 trillion until 2015. The purpose of this report is to: a) summarise as well as provide details on the specific economic benefits of high quality securitisation to the overall European economy, b) provide information which is beneficial to investors, c) provide relevant highlights on changes to banks and regulations, d) provide data on the state of the European securitisation market, including its strong credit and secondary price performance, and e) provide highlights of recent industry initiatives to identify industry best practices in securitisation, such as the Prime Collateralised Securities (“PCS”) initiative. The specific rationale for increased investment in high quality European securitisations is highlighted below. Points 1-8 focus on funding issues, while the remainder focus on investor issues, financial stability, regulatory measures to date and industry initiatives. Supporting data is provided in the text which follows this Executive Summary.