Christian Noyer: New Year's wishes to the Paris financial community
Mr Christian Noyer, Governor of the Bank of France and Chairman of the Board of Directors
of the Bank for International Settlements, presents his New Year's wishes to the Paris
financial community, Paris, 21 January 2013.
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Ladies and Gentlemen,
I would like to start by extending my warmest wishes to you, your colleagues and your
institutions for 2013.
Admittedly, 2012 was a difficult year, but it was above all a fruitful year that marked a turning
point in the euro area crisis. Crucial decisions were taken, providing lasting solutions to
enhance and safeguard the functioning of our monetary union: the implementation of the
European Stability Mechanism (ESM); the Treaty on Stability, Coordination and
Governance; the new agreement on Greek debt; and lastly, the banking union agreement, on
which I will speak in greater depth.
This progress was achieved through a collective effort: the ECB and the Eurosystem played
a decisive role in restoring confidence, thanks especially to a new and particularly
powerful tool: Outright Monetary Transactions (OMTs).Today, there are no longer any
doubts about the irreversibility of the euro. At the national level, countries have shown
that they were capable of taking all possible measures to reduce their deficits and to
put their public finances on a sustainable footing while undertaking the structural reforms
necessary for a return to growth.
I hope that 2013 will be the year in which this progress is consolidated and built upon.
Today, I would like to give my views on the challenges that lie ahead this year. I believe that
the four main challenges are to:
•
Adapt to an environment that is still changing rapidly;
•
Resolutely pursue efforts to strengthen the resilience of the financial system by
preparing for and implementing new regulations;
• Further improve the competitiveness of the Paris financial centre;
•
Continue to support the economy by ensuring the best possible financing conditions.
1. A rapidly changing legislative and regulatory environment
First, your working environment will continue to evolve rapidly, in terms of both
international financial regulation and France's legislative framework.
1.1 A few words on the draft banking reform law in France
The financial crisis highlighted some major shortcomings of international banking and
financial sector regulation as well as the inadequacy of the tools at the supervisory
authorities' disposal to reduce and address risks.
The draft banking reform law reflects the commitment of the President of the French
Republic to separate activities that are useful for the financing of the economy from
speculative activities, which will either be ring-fenced or banned. This law sets out to
enhance the protection of deposits and the security of market activities while - and I
believe that this is also particularly important - striving to ensure that you are still able to
offer a broad range of financial services that allow economic agents to hedge risk, borrow or
invest. The same is also true for market making activities that play a vital role in ensuring
financial market liquidity and thus in convincing investors to finance the real economy.
This will therefore mean a new organisation for banks and greater powers for the ACP,
including notably banking crisis resolution powers. The ACP will then become the
ACPR. In exceptional circumstances, the ACP could call on support from the failing entity's
shareholders and subordinated bondholders. It could then, if necessary, request intervention
by the Deposit Insurance and Resolution Fund, which is currently only required to intervene
in the framework of its depositor compensation arrangements, even though it has already
voluntarily participated in restructuring operations. In this respect, in line with the Paris
financial centre's wishes, the draft law provides that the possibility of calling on support
from the Fund will be capped at a ceiling set by decree in order to ensure that the Fund's
intervention does not result in contagion.
1.2 A few words on the banking union
Distinct progress was made in 2012 in the area of European banking supervision. The euro
area crisis required particularly ambitious measures to be adopted and these steps have
now been taken. Thanks to the determination of European leaders, at the end of 2012, an
agreement was reached on two draft regulations establishing the Single Supervisory
Mechanism under the auspices of the ECB. These two regulations must naturally be
enhanced by proposals on the deposit guarantee fund and the crisis resolution
mechanism, which are the two other essential pillars of the banking union. The ECB, and all
the other national authorities concerned, must now continue the preparatory work so that
the Single Supervisory Mechanism can become operational as soon as possible.
The Banque de France and the ACP provide an important contribution and intend to play
an active role in the new mechanism. This is particularly the case given that around a
dozen major French banking groups will be subject, according to the criteria set out in the
regulation, to direct supervision by the ECB, even though the ACP will remain responsible for
day-to-day supervision.
2. Resolutely pursuing efforts to strengthen the resilience of the financial
system by preparing for and implementing new regulations
The international financial regulatory framework evolved substantially in 2012, and will
continue to do so in 2013. It is therefore particularly important to adapt to these changes.
2.1 The insurance sector must continue, in France and Europe, to prepare itself
for the application of the new prudential regime, Solvency II
Admittedly, 2012 was marked by tough discussions about the Omnibus II Directive and in
particular the question of the treatment of insurance products with long-term guarantees.
These discussions were unfruitful and will delay the entry into force of Solvency II.
However, a positive signal was sent thanks to the agreement reached between the
EU Council, the European Parliament and the European Commission at the end of
December on the terms of reference of the impact study on long-term guarantees. This
study will give impetus to the discussions and I count on the contribution of the
institutions chosen by the ACP.
Insurance companies must take advantage of the extra time before Solvency II comes into
force: in coordination with EIOPA at the European level, we consider that it is already
possible and necessary to make use of certain definitive elements in the Solvency II
directive, in particular concerning governance and the ORSA (Pillar 2), and reporting to the
supervisory authority (Pillar 3).
2.2 In the banking sector, credit institutions must continue strengthening their
solvency - a process that is already well underway - and they must
intensify their initiatives to adapt to future regulations concerning liquidity.
The Prudential Supervisory Authority has organised a series of meetings designed to
familiarise the French financial sector with the changes resulting from the implementation of
the Basel 3 reforms. In terms of liquidity, the coverage ratio (LCR) is now stabilised. In my
New Year address of January 2011, I said that the work on liquidity ratios was
unsatisfactory and that it clearly needed to be reviewed. This has now been done. In
order to counter the fears of the recessionary impact on loan distribution that the first
version of the text might have prompted, a transition phase has been introduced to give
banks more time to conduct their adaptations. Moreover, the calibration of the liquidity
requirements has been refined to better reflect experiences of the crisis, while the list of
assets that can be held to satisfy the liquidity requirements has been extended. Even if
adjustments are still possible in the framework of the European observation period, the
banks need to integrate this new standard into their liquidity management policies as of
today. This means that as we now have clear rules, the necessary structural changes must
be undertaken.
In 2013 we will pursue our efforts on the 1-year liquidity ratio, but also on the links between
monetary policy and the liquidity ratio.
2.3 In the field of savings, the reallocation of household's financial investments
towards bank savings products in 2011 continued in 2012.
The raising of the ceiling of the "A" passbook savings account and of the sustainable
development account led to two months of significant inflows for these products in October
and November, and the ceiling of the "A" passbook savings was again raised on 1 January
of this year. I am perfectly aware that these adjustments to France's regulated savings
generate tensions for the collection of bank resources and life insurance premiums.
However, I call upon the institutions of the Paris financial centre to continue
demonstrating prudence and responsibility in their search for client resources. The Banque
de France and the Prudential Supervisory Authority will be vigilant in this respect. It is vital
that market conditions be fully accounted for in setting the level of interest on financial
products, whether offered by banks or life insurers. It is also best if preference is given to the
collection of long-term savings that are indispensable for financing the economy. Indeed,
I am actively seeking the support of the government with regard to this objective.
The Bank will seek to ease the individual adaptations required by these numerous new
regulatory frameworks. In particular we will strive to facilitate the management of
liquidity and collateral, notably by continuing to support the mobilisation of lending to the
economy via refinancing operations with the central bank, but also via markets. In this
perspective, and at the initiative of the Banque de France, a Paris financial centre working
group has been set up to develop innovative and safe securitisation mechanisms that
should allow banks to make better use of the pool of claims on their balance sheets and to
strengthen their financing capacities. The Bank will also continue to mobilise all parties
concerned, and in particular companies, in order to accelerate and successfully
implement France's migration to SEPA payment instruments that should be finalised by
1 February 2014 for credit transfers and direct debits. When the system is operational, all
parties will benefit from advantages in terms of cost, efficiency, payment security and
management of the associated liquidity in the context of an integrated, competitive and
innovative market for all cashless payments in euro.
3. Improving the attractiveness and competitiveness of the Paris financial centre
The competitiveness of the Paris financial centre is an advantage in our crisis exit strategy
and one that is important to continue developing - particularly after the announcement of
ICE's takeover bid for NYSE Euronext, which could substantially change the role of the
financial centre's players and generate new opportunities.
It is essential that efforts undertaken to consolidate and develop market infrastructures
as well as market and post-trade services be intensified. From this point of view, 2013 will
represent an important step forward with the full deployment of the offer of clearing and
triparty collateral management services for repo transactions in euro that has been
developed with Paris's principal financial operators, banks, clearing and settlement
infrastructures and the Banque de France. We will also strive to take advantage of new
opportunities as they emerge, particularly in the areas of services for financing, investment
and settlement in increasingly international currencies (such as the renminbi) and
infrastructures for enhancing market transparency (such as data warehouses for the repo
market for example).
4. Supporting the economy by offering financing under the best possible conditions
The last point I would like to make is also crucial for economic recovery: it concerns
lending to the economy. The downward trend that has been observed for some time is
primarily due to a fall in demand. But we must of course ensure that the offer of financing
remains sufficiently broad so that SMEs and MTEs, who rarely have access to market
financing, can weather the current difficult economic period without encountering additional
difficulties. In particular cash facilities must remain sufficiently available and the conditions
under which they are offered should not be systematically tightened. In fact, our quarterly
survey of several thousand SMEs show a regular contraction of the rate at which SMEs'
requests for cash facilities are fully granted. In the last quarter of 2012, this rate was only
slightly higher than 50%. The same is true, although to a lesser extent, for mid-tier
enterprises (MTEs). I therefore enjoin you, in general terms, to avoid reducing lending to the
economy, which would aggravate the situation of companies and make the necessary
economic recovery more difficult.
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Ladies and gentlemen,
I have no doubt that you are ready to meet these challenges - particularly as you are
already substantially prepared for them.
It only remains for me, once again, to wish you a prosperous new year, and, by way of a
conclusion, to express my hope that in 2013 the French financial system will be even more
useful to the economy, stronger, more competitive and oriented towards the future,
supported by a vigilant and efficient central bank and supervisory authority.