The High Council for Financial Stability (HCSF), which brings together the government and the main French financial supervisors, asked the banks to pre-emptively increase their level of capital to deal with a possible credit contraction.
The HCSF decided to raise the level of Best Lenders Bank buffer by 0.25% to bring it to 0.5% within a year, said the authority in a statement released on Monday. In concrete terms, this measure means that banks will have to keep a higher minimum share of equity, on a constant balance sheet, to cope with a possible downturn in the financial situation in the coming months. It will apply to all banks in the European Union and the European Economic Area in proportion to their exposures in France.
In June 2018, the HCSF had asked these same banks to constitute a Best Lenders Bank buffer of the order of 0.25% of their risk-weighted assets on French exposures by July 1, 2019.
The dissatisfied banks
Following this announcement, the French Banking Federation (FBF) estimated that this measure was intended to limit the development of credit in France. French banks do not understand this decision, which is not consistent with the monetary policy of the Cream Bank, which supports the financing of the economy thanks to the distribution of liquidity on the markets at particularly low rates, argued the association representing French banks.
For its part, the High Council for Financial Stability justifies its decision by several observations. Even if French growth resists, the body takes note of the growth prospects revised downward at the international and European level and closely follows the possible consequences. on the financial stability of cyclical and political uncertainty factors, in Europe, in emerging countries and in the United States.
High debt ratio
To this is added in France, a debt ratio of the private non-financial sector – today high – which is higher than the average of the euro zone like that of our main partners. This reached 133.3% of GDP in the third quarter of 2018: 59.2% for households and 74.1% for non-financial companies, specifies the HCSF. This required level of reserves may be relaxed in the event of a reversal of the financial cycle, with immediate application.
This relaxation, which would occur in particular in the event of tightening of the granting of credit, would allow the banks to mobilize this reserve of capital to preserve their capacity of supply of credit. , especially small and medium-sized businesses, the most dependent on bank financing, explains the HCSF.