Press conference of Monday, 28 May 2018
Speech by François Villeroy de Galhau,
Governor of the Banque de France,
Chairman of the ACPR
Presentation of the 2017 annual report
of the Autorité de contrôle prudentiel et de résolution (ACPR)
Press contact: Mark Deen (mark.deen@banque-france.fr).
Ladies and Gentlemen,
I am pleased to welcome you for the presentation of the 2017 annual report of the Autorité de
contrôle prudentiel et de résolution (ACPR), alongside Bernard Delas, Vice-Chairman of the
ACPR, Rémi Bouchez, President of the Sanctions Committee, and Edouard Fernandez-
Bollo, Secretary General of the ACPR.
Once again in 2017, the ACPR strived to make finance more secure. I wish to thank the
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more than 1,000 women and men at the ACPR 1,026 FTEs at the end of 2017 for their
exceptional efforts in working to accomplish this goal and I would like to emphasise certain
key achievements from the past year.
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I. The ACPR has been heavily involved in the implementation of common international
standards, capable of reinforcing financial stability
On the international stage, the ACPR made a decisive contribution to the finalisation of
Basel III. I repeat, the agreement of 7 December 2017 is the best possible outcome for
France and Europe. The resulting prudential framework will limit the unjustified variability of
weighted assets while remaining risk sensitive, which was one of our main concerns. It is
fully compatible with the smooth financing of the French economy. I am pleased that the
European Commission has launched initiatives to ensure its application in Europe. The first
step will see the European Banking Authority present its assessment report. Data will be
necessary for certain business areas and I encourage all institutions to actively contribute to
their collection.
In Europe, the ACPR has continued to provide firm support for the work of the Single
Supervisory Mechanism and the Single Resolution Mechanism. The harmonisation of
banking supervisory practices within the euro area is one of the ACPR's primary
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objectives. As for the insurance sector, the ACPR is actively involved particularly within the
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EIOPA in the preparation of the reform of the Solvency II directive and the long-term
guarantee package measures planned for 2018 and 2020, respectively. The goal will be to
better reconcile prudential requirements with increased investment in equity and
infrastructure: reform cannot be a status quo.
European developments have also been shaped by work stemming from Brexit and the
United Kingdom's upcoming loss of its "European passport". The ACPR will take particular
care to ensure that activities transferred to France will be operated by entities that are
capable of managing the associated risks. Empty shell corporations will not be tolerated, nor
will failures to comply with the prudential regulations that guarantee our financial stability.
In 2018, we must keep up our efforts to encourage the consolidation of the European
financial sector. This must of course have an institutional component and, consequently,
completing the Banking Union is crucial. The agreement reached last Friday on the review of
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CRR2 and particularly MREL is an excellent step, but we are not finished yet. In this
respect, the priority is the second pillar on resolution even more than the third pillar on
deposit guarantees. A common backstop for the Single Resolution Fund is needed quickly,
as is a common framework to better ensure that financially sound entities have an adequate
level of liquidity following resolution. Once the work on resolution is finalised, the
environment must be favourable to the emergence of cross-border banking and insurance
groups and pan-European savings products. This means that we will have to work towards
removing the regulatory impediments that currently hinder cross-border mergers. In the
context of a "Financing Union for Investment and Innovation", a more integrated financial
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sector will help to better steer the abundant savings a surplus of almost EUR 400 billion in
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the euro area towards productive investment, equity and innovation across our continent.
Alongside appropriate regulation and appropriate microprudential supervision, appropriate
macroprudential policy now completes the post-crisis trifecta. The ACPR has actively
contributed to the discussions of the High Council for Financial Stability (HCSF). Given
the rapid and excessive increase in the indebtedness of certain large corporations, the HCSF
adopted a measure that will take effect on 1 July 2018 and will impose a limit on the
exposure of French systemic banks to the most indebted large resident non-financial
corporations. Nevertheless, the HCSF remains vigilant with regard to the rapid increase in
bank lending to the private sector, which rose by 5.5% in the first quarter of 2018. French
private sector debt amounted to 130.2% of GDP at the end of 2017, which is the highest of
the major euro area countries. Since 2014, it has increased in France by 9.4% of GDP,
compared with an average reduction of 5.4% in the euro area. On 29 March, the HCSF
stated that it was ready to act. In particular, if we have to determine the countercyclical
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capital buffer, it would obviously not be to stop credit today, but rather as the name
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suggests to prevent it from drying up in the future in the event of a turnaround in the cycle:
banks with insufficient capital could manage the increased risks thus materialising in their
balance sheets by restricting new lending. The aim of a moderate capital buffer is to smooth
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this excessive credit cycle the risk of "go and stop" experienced during financial crises.
II. The ACPR was particularly active in the area of emerging risks and new
technologies
In 2017, the ACPR paid particular attention to the risks and opportunities for the financial
sector related to new technologies, especially via its FinTech Innovation Unit. Its aim is to
provide guidance to new players and to do so it has met with over 300 such players since it
was created in 2016.i But it is equally important for well established players to adapt to the
digital revolution and remain as prepared as possible to deal with cyber-security risks. In this
regard, I welcome the creation of a G7 group for the conduct of cross-border cyber crisis
simulation exercises. And the Banque de France will coordinate the G7 test in 2019. Indeed,
cyber-security will be one of the priorities of the French presidency of the G7 next year.
As regards the adaptation of existing banks and insurers to digital revolution, the ACPR
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published in March 2018 an influential study. These players now all agree that this is their
overriding or even vital challenge, far greater than low interest rates or prudential regulations.
The ability of institutions to retain customer relationships, from branches to the smartphone,
has been particularly put to the test. The response must come first of all from the institutions
themselves, their strategy, their customer offering, their governance, and their investments.
But regulations must also adapt: "same activity, same regulation" of course, and the Big
Techs will have to apply the same rules as banks and insurance companies if they start to
perform the same regulated financial activities. The challenge nevertheless extends beyond
financial regulation alone; it will be how to apply to all players, in a fair and proper manner,
regulations in three broader areas: data protection, monitoring competition and
concentration, and cyber-security. We are aware that the only way to meet this challenge is
through international cooperation. However, when adapting to the digital revolution, no one
should expect that these necessary regulations will protect existing situations. Innovation is
naturally the only effective response.
We must also take a long term view and that is why the ACPR has strived to improve the
monitoring of climate risk. Notably, it participated in the creation of the international Central
Banks and Supervisors Network for Greening the Financial System, building on the One
Planet Summit which was held in Paris. This has already proved a success. The nine
founding members were rapidly joined by four new members, including the European Central
Bank, and two observers: the BIS and the OECD. Other major central banks and supervisors
are also about to join.
III. Enduring requirements: customer protection, and anti-money laundering and
counter-terrorist financing
Anti-money laundering and counter-terrorist financing (AML/CTF) remains a key
objective. ACPR staff pursued their work in this area, aiming notably to ensure that all the
activities performed by French banks through their foreign affiliates are subject to active
monitoring by their parent companies. Obviously banking groups must implement their
AML/CFT policy with the same rigour in their foreign affiliates as they do in their French
entities.
As regards banking inclusion and the supervision of business practices, the Banque de
France continually strives to improve access to suitable banking services for vulnerable
populations and fight against the exclusion of people in financial difficulty, which may also
result from being overcharged for banking services. It is imperative to make further progress
in this area. Bernard Delas will also discuss FPS in the construction insurance sector.
**
To conclude, I would like to share a few figures that illustrate the soundness of our financial
system. In 2017, the net banking income of the six main French banking groups stood at
EUR 146.4 billion. Admittedly, it was up just 0.5% on 2016, but the cost of risk is extremely
low, and fell further by a significant 18% in 2017. The share of impaired outstandings also fell
to stand at just 3.45% of the loan portfolio. The enhancement of the quality of banks' balance
sheets, combined with continued capital growth, has led to further improvement in prudential
ratios. The aggregate CET1 solvency ratio of these six groups reached 13.8% at end-2017,
against 13.3% at end-2016 and notably 5.8% at end-2008. In the insurance sector, I am also
pleased to note that the solvency capital requirement coverage ratio of the main groups rose
to 212% at the end of 2017.
All in all, the French financial system is one of the soundest in Europe. I have every
confidence in its ability to meet any forthcoming challenges and take advantage of future
opportunities. I will now give the floor to Bernard Delas, who will present the prudential
developments in the insurance sector. Rémi Bouchez will then discuss the work of the
Sanctions Committee. Thank you for your attention.