Financial stability

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

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

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.

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).

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

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

By Constant Bourdeloux, Henri de La Guéronnière, Cristina Jude, Astrid Labouret

Leveraged loans are loans extended to highly indebted companies. Their strong growth in the US over the last five years and their packaging into securitised financial products bear a number of similarities with the subprime market that triggered the 2008 crisis. While the comparison is debatable, the risks posed by the leveraged loan market to financial stability should not be ignored.

Outstanding amount of institutional leveraged loans in the United States and in Europe
Chart 1: Outstanding amount of institutional leveraged loans in the United States and in Europe Sources: S&P LCD and Bloomberg data, Banque de France calculations. Estimates as to the exact size of the market differ due to insufficient data and the lack of a standard definition.

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

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