In a scathing attack, Colm Kelleher, the former second-in-command at Morgan Stanley, says Europe's capital markets are "not fit for purpose," and that the expectation is Brexit will make the situation even worse.
At a recent private dinner, Kelleher, who was once one of the most senior banking figures in Europe, delivered a brutal assessment.
“European capital markets are still not fit for purpose. They are neither large nor deep enough to support economic growth or to buffer it in hard times.
"Brexit amplifies the challenge. The City of London is the world class portal through which global capital enters and exits the EU.
"No other EU country has had to think about the requisite legal and physical infrastructure. Now that portal is closing.
“Brexit risks transforming capital markets in the EU, losing the economies of scale and liquidity that London provided.”
Kelleher went on to note that there needed to be one rule book on insolvency and debt, and that Europe needed to ensure a single supervisor to make capital markets union work.
A greater openness to foreign capital as well as European pension reform could also stimulate capital markets according to the now Senior Advisor to Morgan Stanley.
"The EU has more than 25 exchanges, 17 clearing houses and 19 central securities depositories. The UK’s decision to leave the EU, taking the EU’s largest capital market out of the union, is a huge problem."
One of the goals of the EU was to make businesses less reliant on bank funding and give them ease of use to raise money on public markets across the union. To that end, they've been working on capital markets plans for over five years.
However, Brexit has held up that development, even if some progress has been made.
Luis De Guindos, the vice president of the European Central Bank, noted that "from a global standpoint, European capital markets are too small and fragmented," even if loans to big companies from non-banks has roughly doubled (from 14%) over the last decade.