Debt: the Banque de France rejects the risk of a “doom loop” in France

Posted on Apr 17, 2021, 11:20 a.m.Updated Apr 17, 2021, 6:38 PM

François Villeroy de Galhau is not afraid of a “doom loop” in France, this vicious circle linked to the interdependence between banks and the State. While French banks are those that hold the most sovereign debt in the euro zone, the governor of the Banque de France on Friday ruled out the risk of an infernal spiral where the valuation of a State’s debt can lead to its fall that banks and vice versa. An acute risk during the financial crisis of 2008, then that of the euro, in 2011.

The risk of interdependence between banks and sovereign issuers that, as supervisors, we absolutely want to avoid, he said Friday during a seminar in Lisbon. Let me nevertheless stress the fact that I have no fear on this subject for the country I know best: since 2014, French banks have reduced their exposure to public debt in terms of absolute and have done so drastically in relation to the size of their balance sheet.

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