Credit: the authorities are preparing French banks for a return to normal

Posted on Dec. 2021 at 16:55

Return to normalcy in sight for French banks. From March 2023, barring a dramatic turn of events, institutions will again have to add to their “countercyclical cushion”, explained Tuesday the High Council for Financial Stability (HCSF), this entity chaired by the Minister of Finance Bruno Le Maire.

This cushion is an equity reserve required by the French authorities for banks. They are supposed to fill it up when everything is going well. But release it in more delicate periods, such as the health crisis, in order to avoid a credit crunch.

For now, the HCSF “has decided to leave this capital requirement unchanged at 0%”. But he […] expects the rate of the cushion to normalize to its pre-crisis level at its next meeting, once the economic and financial cycle will confirm the capacity of the banking system to support growth, ”the entity indicated.

This next meeting is to be held in March 2022. Knowing that the decisions become enforceable twelve months later, the new standard would therefore become applicable in March 2023.

“No harm in complying”

In detail, just before the outbreak of the pandemic, this cushion was set at 0.25% of risk-weighted assets on certain exposures. While it had been planned for several months to increase it to 0.5%, the financial authorities quickly decided during the first containment to reset it to 0, in order to help banks get through the pandemic and grant loans more easily. .

With the announcement on Tuesday, it is therefore planned to set it again at 0.5% at the next HCSF meeting in March. This “hard” capital surcharge is reviewed every quarter and may not exceed 2.5%.

“Banks should have no trouble complying with it because they are already well capitalized,” said a source close to the HCSF. Thus, the movement reflects above all a change of phase for the global economy, and finance in particular: at the time of the pandemic, a whole arsenal of regulatory relaxations and public support had been put in place to make it possible to cross the containment test.

Now that the health crisis seems to be better under control, the authorities are gradually starting to withdraw the crutches… While giving themselves time to reflect, since the cushion will not actually be back in fifteen months.

The banks have hit the nail on the head

If the HCSF is flexible on this counter-cyclical cushion, it has on the other hand shown severity in recent months in the field of mortgage credit. Next January, its recommendations (limit the duration of loans to 25 years and the effort rate to 35%) will indeed become binding.

Already, the entity, in which the governor of the Banque de France sits, believes it has achieved its objective, all the banks are now in the nails.

For the institution, “the granting conditions continued to improve – globally and for each of the banking networks taken individually – during the last quarter without this calling into question the strong dynamic of mortgage loan distribution, at interest rates which remain historically low ”. In October, mortgage loan production amounted to 24.5 billion euros in France, against around 20 billion on average in 2019.

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