christian noyer : the macroeconomy and financial systems in normal times and in times of stress speech by mr christian noyer, governor of the bank of france, at a conference, jointly organised by the bank of france and the deutsche bundesbank, chantilly, 9 june 2009. * * * introduction ladies and gentlemen, dear colleagues it is my great pleasure to address such a distinguish audience to day. as you may know, this is the second time the banque de france and the deutsche bundesbank have jointly organised such a conference. it is held every two years, alternating between germany and france. the fact that an event of this nature is co - sponsored by the two institutions sends a strong signal to the research community. it also clearly illustrates the importance of research in today ’ s monetary policy making, given the interplay, which is not always fully understood, between financial markets and the real economy. the top quality work that has been done in this conference will be of great help for policy making. normal times and times of stress over the recent months, thanks to the joint actions of governments and central banks, markets have shown gradual signs of improvement. yet, the functioning of the markets has not been fully restored. at the current juncture, one key challenge is to restore confidence in a context where players are still confronted with numerous sources of uncertainty : uncertain exposure vis - a - vis counterparties, uncertain valuation regarding financial assets or financial risks. in such a context, what should we do to return to normality? economic theory provides a set of conditions to be fulfilled for a market to function efficiently : full information, enforceable property rights and contracts, absence of externalities just to mention the most important ones. in times of stress, these conditions are not fulfilled. but they are hardly met in normal times either. moving from one situation, to the other, does not necessarily involve a huge economic shock. small changes in economic sentiment or “ animal spirit ” may bring financial markets to a point of near collapse. the past ten years are a striking case in point. the development of securitisation was initially perceived as improving welfare through better risk management and allocation. overall, it was seen as a move towards more complete and efficient markets. the crisis has shown that this was not necessarily the case : the process was plagued by information asymmetries and moral hazard, and created high risk concentration on a limited number of counterparties, it also lead to the build -

the low interest rates are going to continue, and have to continue, given the global economic cooldown. the current low interest rate environment also has positive effects that must not be underestimated. if the ecb had not acted to bring down interest rates and purchase assets, there would have been between 1 and 1. 5 percentage point of inflation less in the euro area during the 2015 - 18 period, but above all there would have been less growth ( of approximately 2. 5 percentage points ) and fewer jobs in france and europe. the insurance profession, like banks, benefits from this improved economic environment. since 2013, the euro area has created 11 million jobs. mario draghi, whose term comes to a close next thursday, has been far more than a great ecb president. he has been a great servant of europe. b. this low rate environment calls for vigilance and adaptation nonetheless, and this is an undeniable fact as it is mechanical, low rates are putting pressure on european insurers ’ scr coverage ratios. their solvency ratio remained stable in 2018 at an average of around 240 %, but it is true that it declined sharply in the first half of 2019 to 225 % [ q2 2019 ]. this level is still high though, and testament to the resilience of all europe ’ s insurers : it gives them the time and capacity they need to make the essential adaptations. the impact of low rates on insurers ’ solvency, especially for those companies covering long - term risks, has already been one of the supervisor ’ s priorities for a number of years. this year the acpr has again strengthened its supervision of the management of low interest rate risk by ensuring “ ongoing close monitoring ” of those firms that are most exposed. in this context, i would like to urge insurers to intensify their efforts in two areas : reducing the rates paid to policyholders, and diversifying their products and business model. the reduction in revaluation rates – of around 0. 17 % or 17 basis points on average per year since 2011 – has to be continued and stepped up after being put on hold last year. for insurers to meet their long - term commitments securely, they have to – and this is imperative – pass on the lower returns on their investments to the remuneration rates on life insurance policies. the page 4 of 6 rates currently being paid to existing policyholders are still high : 1. 8 %