Speech
Governor
Presentation of the Annual Report of
the Autorité de contrôle prudentiel
et de résolution ACPR for 2023
Published on 29 May 2024
Press conference, Wednesday 29 May 2024
Speech by François Villeroy de Galhau, Governor of the Banque de
Presentation of the Annual Report of the Au...
France Chairman of the ACPR
Ladies and Gentlemen,
I am pleased to welcome you to our presentation of the Annual Report of
the Autorité de contrôle prudentiel et de résolution ACPR  Prudential
Supervision and Resolution Authority), in the company of Jean-Paul
Faugère, Vice-Chairman of the ACPR, Nathalie Aufauvre, Secretary
General, and Alain Ménéménis, President of the Sanctions Committee.
2023 began with bank failures in the United States and the forced
takeover of Credit Suisse, however, it subsequently confirmed the
soundness of the French and European banking and insurance sectors,
helped by the strength of our regulatory framework and supervision
model. Following the rise in interest rates up until September 2023 in
order to - successfully - combat inflation, we are set to reverse the
interest rate cycle - most probably next week.
Despite the rapidly evolving context, French financial institutions have
continued to steer their course in terms of solvency, liquidity and
profitability I. I will then look at how to reconcile financial solidity and
competitiveness, by overcoming certain excessive opposition between
these two notions II.
I. The triangle of requirements
Let me start with the "triangle of requirements" - which is not a triangle
of incompatibility but of "dynamic tension". I will go through it in an order
that corresponds to successive priorities over time. Slide 4
Image
The triangle of requirements
Bank solvency has been at the top of the regulatory agenda since the
global financial crisis of 2008 and we have now achieved significant
progress in this area, particularly in Europe and in France. The solvency
ratio of France's six main banking groups was 15.5% at end-December
2023, well above regulatory requirements. [slide 5 French banks' own
funds have more than tripled since 2008.
Image
Among insurers, which Jean-Paul Faugère will discuss in more detail,
solvency also remains at a high level 249%  a little higher than at the
end of 2022 247%.
Liquidity had been the big worry in early 2023 in the wake of the Silicon
Valley Bank crisis. Here too, French banks demonstrated their
i
soundness: at the end of 2023, their aggregate LCR stood at 147%, and
ii
their NSFR at 115%, well above the minimum of 100% [slide 6.
Image
Liquidity: French banks are also solid
The supervisor's report does not highlight any specific vulnerability in
terms of liquidity for the six main French banking groups. Although
deposits have shifted from sight deposits into interest-bearing deposits
and regulated savings accounts, total deposits have continued to
increase slightly. [see slide 7
Image
Total deposits have continued to rise
Consequently, there can be no doubt: French banks can be, and are in a
credit-provider mind-set. This holds true for housing loans: low figures
for new housing loans are now due to demand, which remains on hold
but should gradually pick up again with average lending rates back down
below 4%. Loans to businesses - including SMEs - continue to register
positive growth in terms of outstandings.
I now turn to the third vertex of the triangle, which is currently more of a
specific challenge for French banks, namely profitability. Until 2022,
their return on equity ratio RoE was comparable to that of other
European and international banks, but since then, a gap has opened up,
with a stable ratio in France but cyclically-driven increases elsewhere in
Europe. Slide 8
Image
ROE A stable situation for the main french banks...
Indeed, during the interest rate hikes of 2023, French banks faced a
steeper increase in their interest expense than in their interest income
due to the specific features of our business model: i.e. the weight of
regulated savings in liabilities and the predominance of fixed-rate
housing loans on the asset side of the balance sheet. Consequently,
their net banking income NBI declined by 3% in 2023. Elsewhere in
Europe, a higher proportion of variable-rate loans resulted in a faster
increase in returns on assets. Nevertheless, French banks' net profit has
remained stable thanks to both a diversified business model that
combines substantial amounts of fees and income from market activities,
and a low cost of risk: fixed-rate housing loans contribute to this by
protecting households from exposure to rising interest rates. Spreads on
senior debt reflect these fundamentals, which are rightly perceived as
sound by the markets [slide 9.
Image
But their fundamentals continue to be perceived as sound by the markets
However, a number of factors suggest that this challenge in terms of
profitability and net interest margin is largely temporary. Since the
summer of 2023, the interest rate on Livret A passbook savings
accounts has been stabilised at 3% until January 2025, and the stock of
fixed-rate loans is gradually being replenished at higher rates. The
specific features of the French model could now prove more
advantageous: the impact of future cuts in interest rates would be less
marked. Although French banks' net interest margins are tighter, they are
also more stable. At the same time, the other activities of a resolutely
diversified model (investment banking, insurance, wealth and asset
management) could benefit from the normalisation of the interest rate
environment as well as from a gradual economic recovery.
The fact remains that the French banking model is structurally defined
by intermediation margins that are among the lowest in Europe, high
lending volumes and a low cost of risk. This model is conducive to sound
financing of the real economy and favourable to banks' customers
(households as well as businesses); fortunately, it does not prevent
France from having some of the largest and most resilient banks in
Europe  4 out of 8 European Global Systemically Important Banks G
SIBs) are French. But there is no excess profitability or super bank profits
Presentation of the Annual Report of the Au...
in France today and this justifies the Government's decision to rule out a
specific bank tax. The same goes for insurers, whose return on assets at
end-2022 stood at 0.61%, firmly aligned with the European average.
II. How to reconcile solidity and
competitiveness?
The competitiveness of insurers or banks is not part of regulators' formal
mandate. However, this does not mean they are not concerned about it:
the competitiveness of financial institutions is one of the underlying
conditions of their soundness. More broadly, it is an essential lever for
financing green and digital transition investments in Europe. The
emphasis that is thankfully placed on the "Savings and Investment
Union" - which combines the Capital Markets Union and Banking Union
projects - is key to accelerating our growth and consolidating our
iii
European economic sovereignty. However, we need to get beyond the
excessive opposition between solidity and competitiveness.
Security guidelines have served our financial system well through the
recent crises, whether they be Basel III, Solvency II, or the
macroprudential policies deployed by the HCSF in France, whose action
is lauded by European and international authorities. This continuity
imperative applies just as much to progress in supervision. Together,
these elements have effectively protected the euro area - through the
pandemic and then the sharp rise in interest rates - from the risk of a
financial crisis and contagion from the Californian and Swiss crises.
To preserve this financial stability, the time has now come for regulatory
stabilisation. This is why European supervisors and legislators are
determined to ensure a level playing field between different jurisdictions
and, consequently, a fair application of Basel III everywhere: nothing
less...and nothing more. The aim here is neither a Basel IV nor over-
transposition. Clearly, this transposition of Basel III is necessary in the
United States, where it currently applies to only 13 banks - leaving a
multitude of sometimes large banks subject to rules that are too lax. At
iv
the GHoS meeting in Basel on 13 May, the competent US authorities
reiterated their commitment to implementing all aspects of the
agreement fully and consistently. However, there is still uncertainty over
the timetable and the exact substance of the final text. If, unfortunately,
delays Presentation and/or differences of the Annual Report in content of the Au... are too significant, then Europe
could - and should - postpone the entry into force of certain provisions,
particularly those on market risks, as provided for in the "Banking
Package" approved on 6 December last. This is clearly not our first best
solution, but it is a safeguard. As regards the revision of the European
Solvency II Directive, we are very satisfied with the political agreement
reached by the co-legislators in December, which maintains the
neutrality of requirements on the French market while supporting
longterm sustainable investment and improving how the principle of
proportionality is taken into account.
As regards supervision, we will be celebrating the 10th anniversary of
Europe's Single Supervisory Mechanism SSM here on 24 June. This will
be an opportunity to recognise this great success - the euro area has
more secure supervision than elsewhere - but also to stress the need to
maintain balanced supervision. This must be strong in terms of its
powers, proactive and intrusive, just as the ACPR has been for decades
and as the SSM is now. And supervision can be strong while avoiding
excessively cumbersome procedures, if it favours a risk-based
approach.
We have achieved Supervisory Union, but not complete Banking Union,
and this continues to hamper the emergence of pan-European banks. It
is high time we leveraged the size of the European market, and aligned
our financial strength with our economic clout and our savings capacity.
For banks - and we see this in the United States - size is objectively a
factor in competitiveness, particularly as it enables banks to amortise
the cost of indispensable investments in digital technology and artificial
intelligence. French and European banks are going to have to innovate
even more resolutely in the tokenisation of their deposits, and in building
"cutting-edge" payment and market infrastructures in conjunction with
public authorities. Central bank digital currency - including wholesale
currency - will be a partner in this respect and not an adversary. For
their part, European authorities must relentlessly step up the fight
against too many short-sighted differences in national positions and
obstacles, particularly in "host" countries.
I will conclude with a quote from Auguste Comte. "To know in order to
predict, to predict in order to be able": in a more uncertain, fragmented
and tougher world, rest assured that now more than ever this maxim
guides the 1,065 women and men working at the ACPR who I would like
Presentation of the Annual Report of the Au...
to heartily congratulate for all their hard work. Thank you for your
attention.
i
LCR average liquidity coverage ratio over a 12-month rolling period
ii
NSFR  one-year net stable funding ratio
iii
Villeroy de Galhau, F., France and Europe: from crisis management to a
longer-term ambition", Letter to the President of the French Republic,
April 2024
iv
Press release, Governors and Heads of Supervision reiterate commitment
to Basel III implementation and provide update on cryptoasset
standard, 13
May 2024
Updated on 29 May 2024