Book capital is now equivalent to 5.2 per cent of total assets, compared with 4.2 per cent in the mid-1990s. The Commission Bancaire is at pains to ensure that all French banks - small and large - build up their capital gradually but steadily until it well exceeds the regulatory minimum. Furthermore, provision cover for doubtful loans now stands at 60.4 per cent. The industry must pursue this prudential policy. In particular, as we have been urging for several years, it must capitalise on the progress made in future risk analysis, based on statistical databases and stress testing, to adopt a more forward-looking provisioning policy. This has already been accomplished in several areas of sectoral or geographical risk. That being said, we firmly believe that international accounting standards should move in this direction, fostering the widespread use of forward-looking provisions and thereby contributing immensely to financial stability. In a context of economic crisis, the constant strengthening of French credit institutions’ financial structure gives them an appreciable safety margin, which could also allow them to play a part in the consolidation of Europe’s financial industry. 2.2  Priority has rightly been placed on controlling risks and ordinary profitability  The other fundamental elements that contribute to the resilience of French banks’ earnings are risk management and control over operating conditions. As you know, the Commission Bancaire places a premium on ensuring that French banks, and credit institutions in general, generate satisfactory profits at operating level.

Commercial paper investors who had shunned the market returned because they were no longer worried that they could get their money back. In extremis, the Federal Reserve could purchase the commercial paper from the issuer, generating the funds to repay the private investors’ commercial paper investment. The fourth and final goal of the Fed’s liquidity facilities has been to ease financial conditions. This has been particularly important in the current environment because the federal funds rate cannot be pushed below zero (the so-called zero-bound constraint). This means that with the federal funds rate having been effectively lowered as far as it can go, the Federal Reserve has had to turn to other tools such as asset purchase programs if it is to ease financial conditions further as warranted given macroeconomic conditions. The Federal Reserve’s purchases of agency debt, agency MBS and longer-term Treasuries have been implemented mainly with one goal in mind – reduce longer-term private sector interest rates, and thereby provide stimulus to the U.S. economy. The Federal Reserve’s Treasury purchase program is designed to hold down the level of longer-term interest rates. To the extent that a lower level of long-term Treasury rates pulls down the level of private long-term rates, then these purchases should also ease financial market conditions. So how have the Fed’s facilities worked in practice? In general, I think the facilities have worked quite well. In those areas where the facilities have been active, we generally have seen an improvement in market conditions.