WEBVTT - Britain Adrift Interview:  Xavier Rolet On Debt Versus Equity

0:00:00.440 --> 0:00:03.480
<v Speaker 1>Take the example of the United States population thirty five

0:00:03.520 --> 0:00:07.240
<v Speaker 1>percent smaller than Europe GDP economy thirty five percent bigger,

0:00:07.760 --> 0:00:11.560
<v Speaker 1>but equity markets ten times more liquid than the UK

0:00:11.680 --> 0:00:14.319
<v Speaker 1>and Europe put together. So where does that come from?

0:00:14.360 --> 0:00:16.480
<v Speaker 1>And I think it's good to be thinking about it.

0:00:16.520 --> 0:00:20.400
<v Speaker 1>There's obviously again a new process that is started. Can

0:00:20.480 --> 0:00:24.319
<v Speaker 1>we modify this rule or that rule. But fundamentally, you

0:00:24.400 --> 0:00:27.360
<v Speaker 1>have a corporate funding environment that to the tune of

0:00:27.440 --> 0:00:30.639
<v Speaker 1>more than eighty five percent, And the UK is in

0:00:30.680 --> 0:00:33.320
<v Speaker 1>the same position as the rest of EU, as Europe

0:00:33.520 --> 0:00:38.560
<v Speaker 1>is funded by bank lending, whereas the US funds its

0:00:38.560 --> 0:00:42.800
<v Speaker 1>economy to the tune of eighty five percent from capital markets,

0:00:42.840 --> 0:00:46.080
<v Speaker 1>mostly equities and arranged by the capital instruments, but only

0:00:46.120 --> 0:00:49.840
<v Speaker 1>fifteen percent comes from bank lending. And it's the fundamental

0:00:49.880 --> 0:00:53.000
<v Speaker 1>difference in approach where the UK and Europe have an

0:00:53.040 --> 0:00:58.280
<v Speaker 1>economy funded mostly by debt, a downside focus bankruptcy, focus

0:00:58.560 --> 0:01:03.840
<v Speaker 1>protection guarantees, focus funding environment, and where regulation and even

0:01:03.840 --> 0:01:09.600
<v Speaker 1>more importantly fiscal policies subsidizes debt heavily but punishes equities.

0:01:09.600 --> 0:01:13.319
<v Speaker 1>And it's that whole difference in culture that has been

0:01:13.360 --> 0:01:17.320
<v Speaker 1>induced by many decades of fiscal and regulatory policy that

0:01:17.360 --> 0:01:19.640
<v Speaker 1>has created the difference, and I think we're today at

0:01:19.640 --> 0:01:24.160
<v Speaker 1>a point where some pretty thoughtful, radical reform is needed.

0:01:24.680 --> 0:01:32.319
<v Speaker 1>There's no shortage of innovation, great academic institutions, technological entrepreneurial spirit, capital,

0:01:32.560 --> 0:01:36.400
<v Speaker 1>all the ingredients are there, except for the fact that

0:01:36.440 --> 0:01:39.400
<v Speaker 1>we can't scale them up. And you can't scale up

0:01:39.920 --> 0:01:45.440
<v Speaker 1>the industries of the future, particularly tech, without far deeper

0:01:45.800 --> 0:01:46.760
<v Speaker 1>equity markets.

0:01:47.120 --> 0:01:51.120
<v Speaker 2>So then why is government not listening, not taking that advice?

0:01:51.240 --> 0:01:53.040
<v Speaker 2>Why are they not going to be Edinburgh full?

0:01:53.360 --> 0:01:57.640
<v Speaker 1>It drives essentially down to one element, which is in

0:01:57.680 --> 0:02:01.800
<v Speaker 1>the ukn Europe, policy makers to control the distribution of

0:02:01.880 --> 0:02:05.320
<v Speaker 1>capital to the corporate sector influence it. If you have

0:02:05.400 --> 0:02:11.240
<v Speaker 1>a very oligopolistic, very concentrated banking industry dependent for its regulation,

0:02:11.440 --> 0:02:13.520
<v Speaker 1>for its capital ratios on the central bank, there for

0:02:13.560 --> 0:02:16.880
<v Speaker 1>the government, you're essentially of a government which is at

0:02:16.919 --> 0:02:20.640
<v Speaker 1>the heart of a capital distribution system where it's not

0:02:20.840 --> 0:02:24.280
<v Speaker 1>investors that make the decision on which technology is going

0:02:24.320 --> 0:02:26.799
<v Speaker 1>to be scaled up. Ultimately it has to go to

0:02:26.880 --> 0:02:27.680
<v Speaker 1>the banking sector.

0:02:28.240 --> 0:02:31.080
<v Speaker 2>While did you think that the conversation in the UK

0:02:31.280 --> 0:02:35.120
<v Speaker 2>specifically has reached this crescendo point. Why is it now

0:02:35.240 --> 0:02:38.680
<v Speaker 2>that you know we hear much more from business about

0:02:38.680 --> 0:02:41.080
<v Speaker 2>this now about the possibility of chay.

0:02:41.120 --> 0:02:43.560
<v Speaker 1>Because I believe that the UK has a lot more

0:02:43.600 --> 0:02:47.440
<v Speaker 1>to lose than the rest of Europe. London was an

0:02:47.520 --> 0:02:52.200
<v Speaker 1>undisputed global financial hub, a leader, if not the number

0:02:52.240 --> 0:02:55.560
<v Speaker 1>one in my opinion, it was number one in many areas.

0:02:55.639 --> 0:02:59.480
<v Speaker 1>And we're now seeing in some areas some of that

0:02:59.639 --> 0:03:03.640
<v Speaker 1>leadership being frittered away, going away, and those are the numbers.

0:03:03.720 --> 0:03:07.200
<v Speaker 1>This is not a political debate, this is a technical debate.

0:03:07.600 --> 0:03:11.040
<v Speaker 1>So there are those who are part of building that

0:03:11.160 --> 0:03:15.080
<v Speaker 1>global leadership, building the global compression engine and interest rates

0:03:15.120 --> 0:03:18.960
<v Speaker 1>to what Clearing at the London Clearinghouse was not an

0:03:18.960 --> 0:03:21.799
<v Speaker 1>easy thing to do. This goes back to twenty fifteen

0:03:21.840 --> 0:03:26.240
<v Speaker 1>and sixteen. LCCH became the biggest clearing house in the world,

0:03:26.320 --> 0:03:30.119
<v Speaker 1>the biggest financial complex. And when you see those advantages

0:03:30.200 --> 0:03:33.040
<v Speaker 1>being frittered away, a lot of the folks that work

0:03:33.120 --> 0:03:37.160
<v Speaker 1>incredibly hard to secure this advantage, some of them start

0:03:37.200 --> 0:03:37.920
<v Speaker 1>speaking out.

0:03:38.160 --> 0:03:42.360
<v Speaker 2>The fifty billion pound fund for investment, the Lord Meth

0:03:42.480 --> 0:03:45.080
<v Speaker 2>the City of London, Nicholas Lines proposed it, Labor had

0:03:45.120 --> 0:03:48.960
<v Speaker 2>backed it. There is this idea that this money would

0:03:49.000 --> 0:03:52.520
<v Speaker 2>take pension fund investment cash and then push it towards

0:03:52.720 --> 0:03:56.480
<v Speaker 2>growth businesses. It seems to have some backing. Others are

0:03:56.560 --> 0:04:00.440
<v Speaker 2>quite critical. Again, is that tinkering in terms of opinions.

0:04:00.440 --> 0:04:03.960
<v Speaker 1>They're plentiful and they're cheap. But US equity markets trade

0:04:04.000 --> 0:04:07.760
<v Speaker 1>seven hundred billion dollars every day. The whole of the

0:04:07.880 --> 0:04:10.880
<v Speaker 1>UK and Europe trade seventy billion, So there is no

0:04:11.040 --> 0:04:13.680
<v Speaker 1>lack of capital in Europe. There is no lack of

0:04:13.840 --> 0:04:17.560
<v Speaker 1>great technologies. The UKs some of the most fantastic universities

0:04:17.600 --> 0:04:20.279
<v Speaker 1>in the world. As a great deal of entrepreneurial spirit.

0:04:20.560 --> 0:04:24.960
<v Speaker 1>There is no problem with the startup economy, but we're

0:04:25.000 --> 0:04:30.000
<v Speaker 1>not freeing, unleashing the full power of equity markets. And

0:04:30.080 --> 0:04:35.719
<v Speaker 1>equity markets are essentially private investors, institutional investors, pension funds,

0:04:35.760 --> 0:04:40.280
<v Speaker 1>insurance companies making the bets for the future, for future growth.

0:04:41.040 --> 0:04:44.520
<v Speaker 1>That is the power that we risk eschewing. If we

0:04:44.600 --> 0:04:49.760
<v Speaker 1>look at government driven solutions, where public money again gets

0:04:49.839 --> 0:04:54.160
<v Speaker 1>in a fairly minor fashion ere marked to fund technology,

0:04:54.720 --> 0:04:56.520
<v Speaker 1>it's not the way this works.