This publication precedes the European Commission's forthcoming new Action Plan on the Capital Markets Union (CMU). It includes ten concrete policy recommendations to help advance the CMU, including the introduction of a Key Performance Indicator (KPI) to monitor progress in household participation in capital markets.
The report supplements the findings of the High Level Forum* on the CMU by analysing the investment behaviour of households across 25 European countries. It looks specifically at the progress made in recent years in shifting household financial wealth from bank deposits towards capital market instruments, namely life insurance and pension fund products, investment funds, debt securities and listed shares.
The results reveal wide disparities across Member States, while also displaying some common elements:
- The vast majority of European households do not invest directly in capital market instruments at all.
- Countries with the lowest share of bank deposits tend to have the highest share of financial wealth held in pension savings.
- Tax incentives play a crucial role in encouraging citizens to save in capital market instruments and in opting for some specific long-term investment products.
Tanguy van de Werve, EFAMA Director General commented: “As correctly pointed out in the High Level Forum report, the EU can help increase participation of retail investors in capital markets by addressing outstanding issues in the area of disclosures to retail investors. These actions will only be effective, however, if Member States concomitantly take appropriate measures in the areas of taxation, pension policies and financial education to encourage more citizens to place their savings into capital market instruments. And we see a clear need for the EU to monitor progress made at national level by using Key Performance Indicators."
EFAMA makes ten concrete policy recommendations in the report to help advance the CMU goal of fostering retail investments in capital market instruments (CMI). The recommendations focus on four areas: financial literacy, pension policies, tax incentives and progress monitoring. To monitor progress in particular, EFAMA proposes to use as a KPI the variation in the 'CMI ratio', i.e. the ratio between the household savings invested in CMI and those placed in deposits. The higher the CMI ratio, the more households participate in capital markets. EFAMA used this KPI to highlight in the report the progress made in fostering retail investments in capital markets since the launch of the CMU initiative in 2015.
The research also finds that:
- Almost EUR 1.6 trillion could be made available to fund the European economy and sustainable growth, if European households would reduce the share of their financial wealth held in deposits by 5 percentage points. This underlines the huge impact increased retail participation in capital markets would have on the financing of European companies, while demonstrating that households could simultaneously benefit through an increase in the return on their long-term savings, thereby securing better retirement income.
- The financial wealth of European households could have been EUR 1.2 trillion higher now had they gradually reduced their share of deposits from 41% to 30% by investing more into equity and bond investment funds in 2018-2019.