Financial stability

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.

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.

By Vincent Grossmann-Wirth and Benoît Hallinger

The Eurosystem’s non-standard monetary policy has led to a significant build-up of excess liquidity in the euro area banking system, concentrated among a few countries. Since 2015, this concentration can mainly be explained by the Eurosystem’s asset purchase programme (APP) and the geographical location of the accounts and settlement circuits used in its implementation.

Chart 1: High concentration of excess liquidity among a few countries
Chart 1: High concentration of excess liquidity among a few countries Sources: ECB, Banque de France

By Bruno Cabrillac, Ludovic Gauvin, Jean-Baptiste Gossé and Florian Lalanne

In countries with very high public debt, a major shock could prevent the implementation of countercyclical fiscal policies and increase default risk. GDP-indexed bonds would help to mitigate these risks and avoid a costly and disruptive restructuring. A counterfactual analysis of the Greek case illustrates this idea.

Chart 1. Greek public debt: observed data and scenario without restructuring with GDP-indexed bonds (% of GDP). Source: IMF and authors’ calculations. * In 2012, Greek public debt was restructured through private sector involvement requiring a EUR 107 billion haircut.

Were it easy to predict financial crises, it would be just as easy for the macroprudential authorities to prevent them. The statistical methods used for forecasting financial crises are greatly improving but have to contend with the fact that such events are (fortunately) rare and occur suddenly. In this article, we discuss the usefulness of early warning systems as well as their limitations on the grounds that the financial system is constantly evolving.

By Sanvi Avouyi-Dovi with Vladimir Borgy, Christian Pfister and Franck Sédillot

In the household portfolio in France, the weight of life insurance stabilised at a high level in late 2015. Its previous growth came at the expense of regulated savings and money market mutual funds. This distribution appears to be mainly linked to supply effects, such as financial innovation and tax incentives, beyond the crises, even though there are some breaks in trends around 2008.

By S. Avouyi-Dovi with B. Bureau, R. Lecat, Ch. O’Donnell, J.-P. Villetelle

Firms in difficulty benefiting from loans at very low rates, known as "zombies firms", remain rather scarce in France. The share of these firms according to size has been broadly stable over the past decade. In 2014 they accounted for about 2.5% of SMEs and slightly more than 1% of the others (Large Enterprises, Mid-Tier Enterprises and Holdings). One deduction is that zombie loans should not be viewed as one of the key factors impairing labor productivity in France.