Mr. Peter Brown:

I would be very much in favour of building a capital markets union. The concept of opening up funding to the SME sector outside traditional banking and opening up investment opportunities for retail and SME investors is very positive. It is a very ambitious plan. The one thing that really needs to be pointed out is that we have just had the most stunning bond market rally in Ireland. Irish bonds, even from the past three years, have collapsed from 6% down to 0.25% for five-year money and 0.7% for ten-year money. It is a stunning market rally. However, €90 billion worth of retail investor money was on deposit with banks during that period, earning practically nothing - 2% net of DIRT at 41%, earning practically 1%. So we have a large investor base and a bond market, neither of which visited each other in that period of time. If the investors had been in bonds, which more or less carry the same risk, they would be sitting on a 6% tax-free return for five-year money, or a 35% tax-free return if they were in ten-year bonds.

If we are going to build a capital markets union, we must ask what is wrong with the current capital markets structure that the investor cannot find the returns that are there in the capital markets. First, we must ask who made those massive returns. The Irish bond market is €220 billion. If someone even bought €10 billion of it, they would have a profit of €5 billion in a three-year period, which is stunning.

The reality is that the investor market is not sophisticated enough to understand bonds. The investor market in Ireland only understands deposits. It does not understand bonds. More worryingly, the financial services sector is not sophisticated enough to sell bonds. One must ask why it did not sell bonds to its clients. It certainly bought them itself. Why was the Irish investor not in the bond market? Why was it only foreign hedge funds who made those fortunes? One US hedge fund walked away with €4.5 billion in profit from the Irish bond market. Why was the investor not in the bond market? If we are going for a big capital markets union to expand it, we must start with the present. My contention is that there is a massive lack of education. Reading through the paper, there is very little that is related to education - only one sentence. The paper is massively short on education. To get the SME to issue a bond into the future requires a huge amount of education to get the SME up that curve.

To get the investor community to buy a bond requires a huge level of education but, unfortunately, to get the financial services professionals to sell a bond also requires a high level of education. I do not believe someone can go into a local bank branch and ask for a bond instead of a deposit. If someone had done that three or five years ago, they would be worth a lot of money now. Unfortunately, it was a product that was not on offer. It is the lack of focus on education in the Green Paper that I find disappointing. I believe there is a huge level of education to be done before we get to a wider capital markets union. That must be a focus in the Green Paper.

There is a lot of reliance on the concept of regulation, but I want to state that the investor is not comforted by more regulation. Regulation did not stop Lehman Brothers from going bust. It did not stop the United Kingdom banks from going bust. It did not stop the Irish banks from going bust. Regulation does not stop banks from going bust. It does not stop poor financial products from hitting the street. It is education that stops people from buying poor financial products. It is education that stops financial institutions from issuing poor financial products. For some of the investment products linked to the capital markets that were released by major financial institutions during the Celtic tiger period, one would have to ask how a product that poor could get through the board, the management team, the product development team and the point of sales team. The answer to products like that ending up on the street is education. It was not that they deliberately wanted to sell poor products; they were just not educated enough to actually do it correctly.

I welcome the Green Paper. It is very important that SMEs have an alternative source of funding, because Irish banks will be stressed into the future. Irish banks cannot raise funds at the same price they could previously. Before the crash, Irish banks raised money in the wholesale market, just as Deutsche Bank, Barclay's or Royal Bank of Scotland could do. That has changed. They have to pay more for their funds now so they will charge higher rates to their customers.

Greater access to funding is a very positive step, as is access to the capital markets for the investor, but we need to realise in the paper that a good deal of education will be required.