Deloitte comment letter on European Commission Green Paper on long-term financing

Published on: 26 Jun 2013

Deloitte Touche Tohmatsu Limited’s European Economic Area member firms have submitted a letter of comment to the European Commission (EC) concerning its Green Paper, ‘Long-term financing of the European economy’.

We address the following questions:

  • What role do you see for banks in the channeling of financing to long-term investments? — We state that, “banks will remain important players in channeling funds to long-term financing of investments. It is necessary that they do because the provision of direct lending to corporates and access to investment opportunities for depositors is already important intermediation channels in the real economy that are central to deposit taking institutions.”
  • Are there any cumulative impacts of current and planned prudential reforms on the level and cyclicality of aggregate long-term investment and how significant are they? How could any impact be best addressed? — We believe it is difficult to be precise on the cumulative impact. However, in some areas, the cumulative impact appears to be greater than the sum of the parts, in particular, (1) due to constraints introduced in the allocation of financial resources and (2) due to interactions between regulations.
  • To what extent do you consider that the use of fair value accounting principles has led to short-termism in investor behavior? What alternatives or other ways to compensate for such effects could be suggested? — We believe that fair value accounting has only limited effect on short-termism in investor behaviour. Alternative ways to compensate for this effect are to consider (1) the role of the business model, (2) alternative measures to fair value, and (3) ensuring that the information delivered does not create further uncertainty. In addition, the EC should consider paragraph OB2 of the IASB’s Conceptual Framework, which states, “the objective of general purpose financial reporting is to provide financial information about the reporting entity that is useful to existing and potential investors, lenders and other creditors in making decisions about providing or settling loans and other forms of credit.”
  • To what extent can increased integration of financial and non-financial information help provide a clearer overview of a company’s long-term performance, and contribute to better investment decision-making? — We support the trend of integrating financial and non-financial information within corporate reporting. Many companies are providing their information in a concise way that explains how their objectives, business model, strategy, risks and key performance indicators link together. Financial reporting should contain essential information and non-financial information should be included when it affects the core business model and the ability to generate returns.


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