The lack of specific alternative funding channels or sources can hinder investment particularly in higher-risk projects -startups, intangibles and innovation- which depend on venture capital or other specialised sources of market-based financing in their early stages. Small and medium-sized enterprises generally also encounter problems in tapping capital, owing to reduced access to market finance. There are several obstacles contributing to fragmentation. First, an investor seeking to diversify its portfolio by having exposures to companies in different countries must deal with legal barriers. The most telling example is the lack of harmonisation of insolvency regimes, which vary widely across jurisdictions for financial and non-financial corporations, as a result of different cultural traditions and legal frameworks. Second, this investor might face different regulations, as the process of strengthening the pan-European regulators is still incomplete. This is a more pressing question as markets become more integrated and technologically complex. Brexit entails a significant risk of further fragmentation, as some companies and transactions may relocate to several different financial centres, while others may remain in the UK. 11  Third, there are also inconsistencies in capital taxation. This is not only a problem of tax rates: tax bases are also different across countries, and there is enormous diversity and complexity in terms of legal requirements and forms, as in the case of withholding taxes. In addition, the so-called debt bias due to the favourable tax treatment of debt relative to equity distorts incentives in favour of the former.
Such challenges relate, in particular, to the potential consequences of the “low for longer” scenario on the profitability of financial intermediaries in general, and of banks in particular, and on their attitude towards risk-taking. In addition, financial intermediaries are now facing a number of relatively new sources of uncertainty, including the simultaneous rise of new regulations, technologies and market players, against a backdrop of rising environmental, social and governance (ESG) concerns. Along with these novel factors, new risks are emerging, ranging from cyber-risks and risks related to crypto-assets to misconduct and legal risks, physical and transition risks associated with climate change, and risks related to regulatory arbitrage. Both regulators  3  and market players are just starting to learn how to deal with and address all these new threats. Let me now share some thoughts on some of the risks I have mentioned and then suggest some policy actions that policy makers could consider implementing in an effort to mitigate them. -  Low bank profitability  Starting with low bank profitability, I would like to highlight three messages. First, this is more a regional than a global issue. In fact, the profitability ratios of banks across countries show marked heterogeneity. For example, the return on equity of Canadian, Swedish and US banks is relatively high. In contrast, banks in Japan and the euro area find themselves in the lower part of the distribution.