Financial stability

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°149

Economic policies to address population ageing: lessons from Japan

Published on 01/22/2020

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By Stéphanie Lange-Gaumand (French Embassy in Japan), Baptiste Meunier and Brieuc Monfort (Sophia University, Japan, and FFJ-EHESS)

Japan is a special case in that it is one of the first countries to face an ageing population. It is also unique in terms of the magnitude of this demographic: the proportion of people over 65 years old is the highest in the world and its population is expected to fall by 40% by 2100. Japan seems to have accepted this population decline and has focused on controlling welfare spending, which reflects national preferences.

Chart 1 – Contraction and ageing of the population
Chart 1 – Contraction and ageing of the population Source: UN forecasts (2019)
Updated on 02/14/2020 16:58
Post n°147

Do highly indebted large corporations pose a systemic risk?

Published on 01/07/2020

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By Cyril Couaillier, Dorian Henricot and Julien Idier

At the end of 2018, “at-risk” firms in France were estimated to have total gross debts of EUR 187 billion. A 100 basis-point rise in their cost of financing could push this amount up by 60%, potentially posing a risk to the financial system. This result supports the measures taken by the High Council for Financial Stability (HCSF) as of 2018 to strengthen the resilience of the banking system.

Chart 1: Debt at risk of French groups
Chart 1: Debt at risk of French groups Source: FIBEN group data and authors’ calculations. Note: ICR = Interest coverage ratio, or the ratio of earnings to interest payments. Net leverage is defined as the ratio of debt net of cash holdings to total equity.
Updated on 02/14/2020 16:33
Post n°142

Divergence of net international investment positions: a snowball effect ?

Published on 11/12/2019

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By Bruno Cabrillac and Baptiste Meunier

The net international investment positions (NIIP) of the G20 countries have diverged since 1990. While this divergence results partly from persistent imbalances in goods and services, NIIPs have their own dynamics: the portfolio generates income and capital gains or losses. These dynamics have had a stabilising effect at the cost of financial risks for some debtors, i.e. the United States, and an excessive accumulation of safe assets by some creditors.

Chart 1 – Financial effects and real factors
Chart 1 – Financial effects and real factors Sources: Lane and Milesi-Ferretti (2017), authors’ calculations
Updated on 02/14/2020 12:28
Post n°133

Draining bad loans in China: bad banks are not enough

Published on 09/19/2019

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By Irena Peresa and Edouard Vidon

Amid slowing growth and corporate deleveraging, State intervention in certain Chinese banks is again on the table. 20 years ago, asset management companies (AMCs) were set up to bolster the largest lenders, but their purpose has radically changed since. To address current bad loan issues, the priority should be to develop the secondary NPL market.

Figure 1: Four AMCs were originally set up to bolster the largest state-owned banks Source: Authors
Updated on 02/13/2020 11:38
Post n°129

How do foreign banks react to French prudential policies ?

Published on 09/03/2019

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By Stéphane Dees and Julio Ramos-Tallada

Overall, French prudential policies entail a reduction in foreign banks’ lending to French residents. Yet some measures may lead to undesired leakages that potentially undermine authorities’ goals: foreign bank affiliates’ exposure to France rose by 1.1% (up EUR 1.5 billion) on average over 2011-17 owing to the implementation of Basel capital requirements.

Chart 1: Foreign banks’ exposures to France (as a % of total bank debt of French residents)
Chart 1: Foreign banks’ exposures to France (as a % of total bank debt of French residents) Source: BIS Consolidated Banking Statistics (CBS) – Immediate Borrower (IB) and authors’ calculations.
Updated on 02/11/2020 16:39
Post n°123

The regulation of global systemically important banks has met its goals

Published on 07/17/2019

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By Aurélien Violon, Dominique Durant and Oana Toader

Global systemically important banks (GSIBs) – those whose failure could adversely affect the economy – are subject to stricter regulations than other banks, leading them to curb the expansion of their balance sheets to a greater extent and resulting in a fall in their share of global bank assets. We show that, despite this, GSIBs have not reduced their lending to the economy. The G20’s goals have thus been met: GSIBs have been made more resilient to shocks without negatively affecting the financing of the economy.

Chart 1: Decline in GSIBs’ share of the total assets of large banks
Chart 1: Decline in GSIBs’ share of the total assets of large banks Source: S&P Market Intelligence – Sample of 97 large banks (34 of which were designated as GSIBs at least once over the period under review).
Updated on 02/11/2020 10:40
Post n°122

75 years of Bretton Woods: why nothing (ever) worked as expected

Published on 07/15/2019

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By Eric Monnet and Marie-Hélène Ferrer

On the occasion of the celebration of the 75th anniversary of the Bretton Woods Conference, this post reflects on the history of the international monetary system of the same name (1944 - 1971). The Bretton Woods system did not work as expected. Rather than cultivating the myth of a golden age, it is preferable to recognise the adaptability of monetary and financial multilateralism over time.

Figure 1: The hotel where the Bretton Woods Conference was held (New Hampshire, USA)
Figure 1: The hotel where the Bretton Woods Conference was held (New Hampshire, USA) Source : https://commons.wikimedia.org/wiki/File:The_Mount_Washington_Hotel,_Bretton_Woods,_NH.jpg
Updated on 02/11/2020 10:24
Post n°121

Cybersecurity: international cooperation requires reciprocity

Published on 07/11/2019

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By Edouard Vidon, Céline Rochon

Cyberattacks have emerged as a major threat, including to global financial stability. By capturing the strategic interaction between cyber criminals and their targets, Game Theory provides valuable policy insights. It highlights the limitations and side effects of uncoordinated deterrence policies, and the importance of information sharing across public authorities. International cooperation is essential. The G7 is leading the way.

Figure 1: Game Theory in action: How deterrence can preserve the status quo
Figure 1: Game Theory in action: How deterrence can preserve the status quo Note : adapted from Zagare,2019
Updated on 02/17/2020 15:18

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