EU Bank Reforms Working For SMEs

The European Central Bank has released its latest report on the state of financial integration in the EU, and the results are promising – especially for small- and medium-sized businesses.

Reports announced Monday (April 27) that the ECB’s annual report found significant economic improvements in 2014 compared with the year prior. The Financial Integration Composite, or FINTEC, uses an array of variables to determine the development of financial integration, including the banking, bond, equity and money market segments.

According to ECB Vice President Vitor Constancio, this progress is especially beneficial to SMEs, leading to improved access to working capital. “European financial integration has improved over the past two years, and that has also been to the benefit of the access to finance by firms,” he said. “Our measures have reduced financial fragmentation and, since last year, both the level and the dispersion of credit interest rates have been reduced, especially for small and medium-sized enterprises.”

Those measures include the founding of the Banking Union following the 2008 financial crisis, which established guidelines for every financial player in the EU. The rules established the ECB as the central supervisor of banks.

These reforms, the ECB said, have led to improvements in financial integration within the EU’s banking sectors. While loan rates fell throughout much of the economy, SMEs saw an especially narrowed gap in loan rate differences across borders.

“The fact that the narrowing of the gap is particularly visible for small retail loans indicates the success of some policy initiatives aimed at restoring SME financing,” the ECB said in a statement, “which plays a crucial role in restoring sound economic growth in distressed countries.”

While the European Commission is working on new regulations to facilitate cross-border crowdfunding aimed at boosting SMEs’ access to financing, many small businesses across the EU continue to report difficulty in accessing working capital. Recent recommendations by the Basel Committee on Banking Supervision have also called for a 300 percent risk weight to be placed by banks on SME loan applicants, a move some argue could make it more difficult for small businesses to access the financing they need to survive.