Financial markets

Post n°155

What if large firms were to go bust?

Published on 03/12/2020

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By Sarah Mouabbi

What would the economic cost of a systemic firm going bust be? This post addresses this question by assessing the recessionary effect of a systemic default. Within two years, such an event is expected to be followed by a 3% decrease in aggregate consumption and by three more systemic defaults.

Source: Gourieroux, Monfort, Mouabbi and Renne (2019)
Figure 1: Euro area probability of consumption dropping by more than 10% or 20% (horizon= 12 months) Source: Gourieroux, Monfort, Mouabbi and Renne (2019)
Updated on 03/12/2020 16:49
Post n°152

Responsible investment labels in France: taking stock

Published on 02/13/2020

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By Emilie Candus and Jean-Luc Le Goff

2019 saw very significant growth in labelled funds. With subscription rates higher than the industry average and broadly comparable levels of performance, the label is proving to be a factor of attractiveness for investors. However, the success of the labels is uneven and their penetration in the landscape of French collective investment management remains limited. Further educational and promotional efforts are still needed to step up the distribution of these products among savers.

Chart 1. Labelled funds accounted for only 7% of the French collective investment management market in 2019
Chart 1. Labelled funds accounted for only 7% of the French collective investment management market in 2019 Sources: Association française de la gestion financière (AFG – the French Asset Management Association), Banque de France and the French Ministries for the Economy and for Ecological Transition. Note: Estimate of the responsible investment collective man
Updated on 02/13/2020 14:55
Post n°140

The China rebalancing of benchmark indices: what implications?

Published on 10/29/2019

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By Florian Lalanne and Irena Peresa

Responding to China’s greater capital account openness, major investment indices have started incorporating renminbi-denominated securities. This is expected to support portfolio inflows into China and increase the correlation between domestic asset prices and external factors. The consequences for other emerging markets are uncertain.

Composition of the MSCI Emerging markets index (%).
Chart 1: Composition of the MSCI Emerging markets index (%). Source: MSCI. Note: The index is composed of equity securities. China A-shares are renminbi-denominated equities traded in Shanghai and Shenzhen, while China offshore shares are mainly traded in Hong Kong.
Updated on 02/14/2020 11:53
Post n°117

Senior customers’ vulnerability and financial institutions’ business practices

Published on 06/04/2019

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By Jade Al Yahya (Banque de France)

Since 2018, the ACPR and the AMF have studied how financial institutions adjust their business practices to demographic ageing. Senior consumers are particularly likely to experience vulnerability. Yet, according to preliminary results, a commercial offer based solely on an age criterion, the most commonly used today, is far from satisfactory.

Chart 1. Population projection for the European Union by age category.
Chart 1. Population projection for the European Union by age category. Source: Eurostat.
Updated on 02/17/2020 11:54
Post n°116

What are the financial risks to euro area growth?

Published on 05/27/2019

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By Naomi Cohen, Laurent Ferrara, Matteo Mogliani and Jean-Guillaume Sahuc

Monetary policy decisions require a prior assessment of different economic scenarios, including the most extreme ones. Assessed on the basis of the Banque de France's Financial Conditions Index, financial risks that are likely to weigh on the distribution of future euro-area GDP growth appear limited.

Expected distribution of euro area quarterly GDP growth between 2001 and 2018
Chart 1: Expected distribution of euro area quarterly GDP growth between 2001 and 2018 Sources: Eurostat, Banque de France, authors' calculations.
Updated on 02/17/2020 11:37
Post n°108

Company ratings: useful information for banking relationships

Published on 03/14/2019

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By Christophe Cahn, Mattia Girotti, Federica Salvadè

The banking sector assesses the credit risks associated with borrowers. What are the consequences to be expected from the production of information by a third party? Exploiting a change in the rating methodology of the Banque de France, this post shows how the disclosure of more detailed information on companies can increase the supply of credit for their benefit.

Chart: Companies with a fine-tuned rating obtain more credit
Chart: Companies with a fine-tuned rating obtain more credit
Updated on 02/14/2020 10:15
Post n°104

The wedge between the return on capital and risk-free rates

Published on 02/21/2019

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By John Hutchinson and Arthur Saint-Guilhem

For several decades, the wedge between the return on capital and risk-free rates has been growing in the euro area and the United States. We examine the drivers of this wedge and find that while the risk premium is the main driver, mark-ups also play a role. More recently, the contribution from mark-ups has decreased in the euro area and increased in the United States.

Chart 1: Growing wedge between the return on capital and risk-free rates in the euro area and the United States
Chart 1: Growing wedge between the return on capital and risk-free rates in the euro area and the United States Source: AMECO, FRED, AWM, and authors’ calculations.
Updated on 02/13/2020 16:04
Post n°102

Real estate: are high loan-to-value ratios the most risky?

Published on 02/07/2019

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By Thomas Ferrière and Laure Frey

Household mortgage debt can jeopardise financial stability, as the 2008 crisis showed. This risk is often assessed using the ratio of the loan amount to the value of the financed property, or loan-to-value ratio (LTV). Yet, very high LTVs cover in large part the property purchases, excluding primary residences, of households with the highest incomes, which are not necessarily the most risky. Therefore, this ratio by itself is insufficient to provide the full picture.

Chart 1: Lower LTVs for primary residences
Chart 1: Lower LTVs for primary residences (% of the 2014 value of the property) Sources: INSEE Household Wealth Survey 2014-2015 and authors’ calculations.
Updated on 02/13/2020 11:21
Post n°100

An Alternative Financial Conditions Index for the Euro Area

Published on 01/16/2019

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By Anna Petronevich and Jean-Guillaume Sahuc

Financial conditions are not fully captured by the short-term interest rate, especially when it is stuck at its lower bound. As a result, financial institutions and central banks turn to other indicators richer in information such as financial condition indices (FCI). We provide a new FCI with time-varying component weights which pinpoints the sources of changes in financial conditions.

Dynamics of the Banque de France FCI for the euro area
Chart 1: Dynamics of the Banque de France FCI for the euro area Sources: Bloomberg and the authors’ calculations
Updated on 02/13/2020 10:49
Post n°92

Euro area interbank fragmentation: bad sovereign or bad balance sheets?

Published on 11/08/2018

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By Silvia Gabrieli and Claire Labonne

Between 2011 and the announcement of Outright Monetary Transactions (OMTs), high rates of non-performing exposures to peripheral countries hindered banks’ access to the interbank market. Sizeable holdings of peripheral countries’ sovereign bonds also increased the price paid for interbank funding. The introduction of OMTs in 2012 and Targeted Longer-Term Refinancing Operations (TLTROs) in 2014 successfully curbed these channels of fragmentation risk.

Figure 1: Average interest rates in the euro area interbank market for GIIPS
Figure 1: Average interest rates in the euro area interbank market for GIIPS Source: Gabrieli and Labonne (2018)
Updated on 02/11/2020 16:14

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