The significance of the European capital market for the financing of the corporate sector

The continental European financial system distinghuishes itself from its American counterpart by the dominance of banks in the financing of nonfinancial companies. Only a fraction of the external capital need of the private sector is fulfilled directly, on the public capital market. Non-bank financial intermediaries play a minor role in most continental-European countries. EMU will bring convergence of the European financial system toward the American system, as both public capital markets and institutional investors are expected to fulfill a more important role in the financing of the corporate sector.