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New Year wishes to the Paris financial centre Paris, 19 January 2021
Speech by François Villeroy de Galhau,
Governor of the Banque de France,
Chairman of the ACPR
Press contact: Mark Deen (mark.deen@banque-france.fr) and Deborah Guedj
(deborah.guedj@banque-france.fr)
This video is a first. Our New Year's wishes this year come in a
"Covid-friendly"
format: virtual but very warm. I am extending them on behalf of all the women
and men of the Banque de France and the ACPR. I hope that 2021 proves to
be a better year for our beloved country, with the vaccines that should halt the
epidemic by the second half. A better year also for you and your loved ones,
with a special thought for those of our fellow citizens who have unfortunately lost
someone close to them during this epidemic.
2020 was an extremely trying year in many respects, but also a year of
exceptional collective mobilisation (I). We need to capitalise on that resilience
to meet the numerous challenges of 2021 (II).
I. The fruits of 2020: Financing of the economy and resilience of the
financial system
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In response to the Covid crisis, public authorities the government and central
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banks businesses, especially
VSMEs, withstand the shock and protect their employees. Financial institutions,
together with their staff, were at the frontline of this mobilisation: banks by
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distributing EUR 130 billion of state-guaranteed loans a record in Europe, and
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keep up the commitment but also insurers and this has been less frequently
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mentioned with numerous payouts on claims not covered in policies. Your
teams have demonstrated remarkable operational agility. This resilience also
stems from the efforts of banks and insurers who went into the crisis on a firm
financial footing, with large French banking groups having almost doubled their
capital requirement coverage
own funds since 2008 to 15%, and insurers'
averaging 239% at end-September 2020.
we don't currently need to worry about their financial
But although soundness,
we still need to remain vigilant: there is still a high degree of uncertainty, which
calls for the maintenance of our fiscal support measures and an accommodative
I won't talk about the latter today as we are in the "quiet period"
monetary policy.
before the meeting of the Governing Council on 20 and 21 January.
II. The challenges for 2021
After a few more difficult months at the start of the year, 2021 should see the
end of the pandemic and the beginning of the reconstruction. And in the financial
we will need to capitalise on 2020's resilience
industry itself, to meet four
challenges that I shall sum up using the four cardinal points of the compass.
1/ The first, of course, is Brexit, so in the North. On 1 January this year, the
United Kingdom lost its financial passport. We had actively prepared for this,
and fortunately the continuity of financial services has been maintained. Despite
the pandemic, by end-2020, more than close to 2,500 jobs had already been
transferred and around 50 British entities authorised, with the relocation to
France of at least EUR 170 billion of assets. More relocations are expected and
should be speeded up over 2021. On a more structural level, Brexit means that
Europe has to develop its own financial autonomy. We need to reinforce our
market infrastructures, especially for the clearing of interest rate instruments,
genuine "Financing
with the strengths of the Paris marketplace. We also need a
Europe's savings surplus - -
Union" to channel close to EUR 220 billion more
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efficiently into productive investment. It is now otherwise it will never happen
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that we need to seize the dual opportunity offered by Brexit and the
reconstruction to truly build a Capital Markets Union: I stand alongside the AMF
and its Chairman in saying this.
2/ It is precisely this private investment that will prove decisive in supporting the
economic reconstruction. In this reconstruction, we Europeans will have to be
Schumpeterians while also remaining Keynesian: in 2020, the US economy, so
to our West, proved twice as resilient as Europe's. The post-crisis period should
not be about restarting things exactly as they were before; it should be a
transformation towards an economy that is more productive and "better" in three
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respects: more digital, more environmentally-conscious, more qualified we
must never forget the battle of skills, which is the most important one, albeit the
least frequently discussed.
Support for businesses should also shift from the widespread provision of
liquidity to a more selective solvency-based phase that targets those firms that
are economically viable but have been financially weakened by the crisis. The
public mechanism is there, with sufficient funds (EUR 20 billion of outstanding
loans with a 30% public guarantee). It is up to you to use it well. I have two
wishes in this respect: it is better to try out several instruments in parallel, not
just crowdlending but also subordinated bonds and other solutions. And not just
banks, but also insurers and funds.
Financers-distributors should also be co-investors, and bear some of the private
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risk a minority share of course themselves. If the public purse were to
shoulder 100% of the risk, we would lack that vital selectivity based not only on
a budgetary requirement, but also on the need for economic productivity.
3/ The third challenge is to keep on course with our regulatory security, in the
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direction of Basel, in the East. The fact that the current crisis a public health
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and economic one has not escalated into a financial crisis is because, since
banks'
2009, our prudential framework has strengthened resilience. And so, yes,
France and Europe must remain committed to ensuring that the implementation
of the Basel III Accord is fair, reasonable and definitive. It would be foolish to
claim that Basel III will prevent lending to SMEs, when outstanding loans to
SMEs in fact increased by 20% at end-November. We shall also use other tools
financial stability: the HCSF's
to safeguard adjusted recommendation on real
estate loans will be published this month, following our balanced and efficient
decision in December. Our first "pilot exercises" or climate stress tests will be
published in April. In insurance, the Solvency II normative framework has
demonstrated that it is sufficiently flexible to deal with periods of tension. The
review of this framework has already made progress, which needs to be
continued, on two improvements that are in our view essential: i/ removing
obstacles that are unjustified from a prudential point of view and that could
penalise long-term investment; ii/ strengthening the countercyclical tools to
better withstand a protracted low rate environment.
4/ That leaves the South, and the hope that its light inspires leads me to
conclude by wishing our financial industry robust economic health. Given that
it provides work for more than a million people, a strong financial industry is vital
for employment. It is also key for French and European sovereignty, and to
better channel the additional savings accumulated during the crisis (between
EUR 110 billion and EUR 120 billion at end-2020) towards investment in
reconstruction. The fact that our financial institutions have insufficient levels of
profitability should now be a focus of attention: between 2015 and 2019, the
ROE of the main French banks stabilised at an average of around 6%, which is
close to the European average but half that of US banks. This will in large part
depend on the institutions themselves, on their ability to speed up their
adaptation, to digitalise and to innovate, especially in the field of payments: we
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have two years no more to build a European alternative to the Bigtechs.
- "la Tech" -
Fintechs French are an asset to our financial marketplace and not
a threat. But public authorities also have their role to play: stable regulations and
taxes in France, at least for 2021, would help. And a prudent return of dividend
payments would also be a welcome step, albeit only a first one, towards making
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them more attractive and increasing their essential capacity to raise capital.
For banks, we will apply the very prudent decision of the SSM. For insurers, the
decision falls to the ACPR and we shall take it by February in as balanced a way
as possible, including with regard to the rules adopted elsewhere in the world.
2021, a year of uncertainties, but also one of work, the year of a rebound and
even a year of progress: that is all I wish for us, and that I wish to each and
every one of you. Happy New Year!